World Bank on the Nation of Ecuador. “The World Bank May Cause Ecuador’s Ruin“

ORIGINAL FRENCH ARTICLE: Comment la Banque mondiale risque de ruiner l’Équateur

Translated by Isabelle Metral

Is a Country Entitled to Effective Legal Sovereignty Over Its Natural Resources?

Seven hundred million dollars. That is the sum Ecuador, one of the smallest countries in Latin America [1] was sentenced to pay to the Texaco-Chevron multinational on March 30th. The amount is the equivalent of the compensation money imposed on Germany at the end of WWI [2] And seven other rulings are still pending in the files of ICSDI, the International centre for the settlement of disputes between governments and foreign investors, an arbitration organism under the authority of the World Bank, to which multinationals that have invested in Latin America appeal whenever their interests are damaged or simply under a threat (an important tax increase or the imposition of a minimum wage may be considered as “indirect expropriations”).

The ruling may spell total ruin for Ecuador, whose public debt stands at 27% of the GDP already, and whose single crime is its determination to exert its legitimate sovereignty over its natural resources.

But Ecuador is not the only country concerned by those unfair settlement procedures. In the 1970s and 1980s, under economic and financial pressure, or under military pressure (vide the coups in Chile and Argentina), almost all of Latin America’s governments have indeed turned simple industrial or commercial contracts with foreign investors into bilateral or multilateral treaties between sovereign States. [3] Today, there are as many as 2,300 treaties worldwide for the protection of foreign investors. At stake for multinationals is the protection of their interests, by excluding conflicts between a sovereign State and a foreign investor from the national jurisdiction of the country that received the investment.

The conclusion of such “international treaties”, whereby the contract status (under commercial law) is changed into a treaty that falls under international public law, is that it makes it possible to maintain the agreement fifteen years after its denunciation by the country’s government. And also to have conflicts settled by an organism “independent” of national States. Worse still, by virtue of the pro-market logic at work in the transformation of a contract into a treaty, the “independent” arbitration organism comes under the authority of no international court for the defence of human rights, nor of any regional international law court. It is under the authority of the World Bank, whose president is de jure president of its board of directors, and so – since the World Bank’s role is to define the conditions under which funds may be granted to a country and so to protect foreign investors – it is, by virtue of this mission, both judge and judged. To cap it all, ICSID’s rulings are immediately enforceable and cannot be appealed to any other jurisdiction.

The issue here is whether priority should be given to the multinationals’ defence of private owners’ interests, over the defence of the general interest by the government of the home country in the name of popular sovereignty.

Another issue is whether a government’s legitimate action to ensure the defence of national natural resources and the right of all its citizens to good-quality food, health, and education can be pronounced illegitimate under the plea that it jeopardizes the “fair benefits” a multinational is entitled to expect from its investments in that country.

Still another issue is whether ownership rights should prevail over human rights as capitalist globalization would have it everywhere, thus making it essentially impossible for a Nation-State to attempt to regain control of its national economy and finance in the name of its people’s sovereignty.

That is perfectly clear to all Latin American countries that, confronted as they are with the rise of their peoples’ claims to the defence of national natural resources and their rights to education, health, and food, are trying to free themselves from the rule of capitalist globalization over their development. They resist and more often than not denounce those bilateral or multilateral treaties as well as the ICSID arbitration that were imposed upon them in the 1970s and 1980s. That was why, on July 2nd, 2009, Ecuador denounced the recourse to that organism’s arbitration in the bilateral agreements that Ecuador had signed with the US or EU States, by reference to a new article of Ecuador’s Constitution, voted by referendum on September 28th, 2008. This forbids it to sign agreements that would deprive the Ecuadorian State of its national sovereignty and to grant the right to settle conflicts between the sovereign State and individual persons or private legal entities to any external settlement organism.

But all true liberals are genuinely concerned by these issues. Those conflicts raise issues about the relations between international capital and sovereign States responsible to the people who elected them. Will it be possible to found international economic relations on a new basis — one that would not be either the invisible hand of free competition and the market — or the iron hand of pro-market globalization that threatens national sovereignty? This new international economic order would be a democratic alternative that enabled States both to defend themselves against speculative onslaughts as well as to defend their natural resources. basically an alternative mode of development and the promotion of all human rights, against private interests?

It is not just our support for Ecuador, Brazil and Bolivia that is needed, but we must endorse their struggle by making it our own — for human rights, ALL human rights, to become THE reference in matters of international public law.

[1] Ecuador has 14 million inhabitants; its area is half that of France.

[2] 700 million dollars means 50 dollars per inhabitant, whereas Ecuador’s GDP per inhabitant is only 3,800 dollars, 9 times less than the French GDP per inhabitant.

[3] Brazil is the only Mercosur country not to have accepted ICSID arbitration. Out of the 232 rulings pronounced by ICSID, 230 were in favour of companies and against the States.