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By Daniel Zoll
December 13, 2000
Last spring, thousands of residents of Cochabamba, Bolivia, seized control of the city's central plaza to protest a dramatic increase in their water bills, which by some accounts had doubled or even tripled. The protests triggered clashes across the country over a wide range of other economic problems. In response, the federal government declared a state of emergency and ordered a violent military crackdown. By the time the tear gas had cleared, six people had been killed and hundreds injured.
The target of the Cochabamba uprising was the local water utility, Aguas del Tunari (AdT), which was operated in part by International Water Ltd., an affiliate of San Francisco-based Bechtel Group. In a victory for privatization foes, the protesters succeeded in ousting AdT, rolling back rates, and restoring public control of the water system. Last month the Bolivian government formally canceled AdT's 40-year contract.
But the controversy is far from settled. Now, according to Bolivian news reports and documents obtained by the Bay Guardian, Bechtel is threatening to use a 1992 trade agreement between Holland and Bolivia to sue the Bolivian government, seeking at least $25 million in damages and future lost profits. If the company follows through with its threat, a secret tribunal set up by the World Bank will hear the case.
"The people here in Cochabamba have made it very clear that there is not going to be one cent of compensation," said Tom Kruse, an American activist and academic living in Cochabamba. "The Bechtel affiliate came here and raised prices before improving the water system. They were going to use money from the pockets of poor people to fund their investments."
Kruse is working with the Coalition for the Defense of Water and Life, the grassroots community and labor group that organized the water-privatization protests. The coalition says Bechtel is trying to use the Netherlands trade treaty to circumvent the Bolivian legal system and to escape the scrutiny of local water customers.
The Bechtel-Bolivia dispute is the latest example of a trend that worries social-justice and environmental advocates around the world: increasingly, corporations are exploiting new global investment rules in order to bypass conventional legal and political channels and to challenge domestic laws.
Bechtel's tap dance
Bechtel, which recently was awarded a $45 million contract to manage the upgrade of San Francisco's water system, reported $15 billion in revenues last year on engineering and construction projects around the world.
Why would a San Francisco-based company sue a Latin American country under a Dutch trade treaty? Last November, just after it started operating the water system in Cochabamba, Bechtel notified the Bolivian government that its International Water affiliate had been reincorporated as a Dutch company. On May 25, after protests forced AdT out of Bolivia, the company sent a six-page letter threatening to sue under the Holland-Bolivia trade agreement, asserting International Water's status as a Dutch company.
Some observers say the timing of the transfer of shares to Holland is suspect, given that the company's claim for damages now rests on the fact that International Water is a Dutch entity. Did Bechtel move International Water in anticipation of the troubles? Patrick Jeantet, chief operating officer of International Water, declined to discuss the company's motives, saying only that "International Water reincorporated in the Netherlands before the Cochabamba events you mentioned."
According to sources in Bolivia, the government is not recognizing Bechtel's standing under the treaty, insisting that the dispute be settled in the Bolivian courts.
Under the Holland-Bolivia treaty, the parties had six months to try and negotiate a settlement. That deadline passed on Nov. 25.
Jeantet said in a faxed statement that the company is still seeking an amicable settlement with the government. If no settlement is reached, he said, the company will "seek the protection of Bolivian law." Bechtel has not yet sought arbitration under the Holland-Bolivia pact, he said, "although it's a possibility that hasn't been ruled out." Jeantet would not say what Bechtel intends to do next, except that the company is "exploring all of its options."
Cochabamba residents are exploring their options too. Last week the Coalition for the Defense of Water and Life held a seminar called "Water: Globalization, Privatization, and the Search for Alternatives," attended by activists from a number of countries, including the United States, Canada, and India. The coalition is seeking international support for its efforts to reconstruct its local water company and head off renewed privatization efforts by the government.
Activists are also lobbying the government to aggressively fight Bechtel's claim, holding the company responsible for the rate hikes that sparked the violence last spring. Bechtel has maintained that typical rates increased only 35 percent. But according to Bolivian-based activist Jim Shultz of the Democracy Center, who has reported extensively on the situation in Cochabamba, rate increases of 100 percent "were the most common," and for many people hikes were much higher. He said that families earning a minimum wage of less than $100 a month "were told to fork over $20 and more or have the tap shut off."
The Cochabamba fiasco has already fueled the growing global opposition to water privatization. Now it may reignite the controversy over another trend: the use of international investment agreements to challenge domestic laws and government actions.
As part of its Campaign for Global Fairness -- launched after the Seattle World Trade Organization protests -- the AFL-CIO is providing funding for the grassroots Cochabamba coalition. AFL-CIO public policy analyst Elizabeth Drake said Bechtel's actions show how international investment law is stacked against national governments and local communities.
"It appears that Bechtel can use any corporate identity that suits them," Drake said. "They have incredible power as a corporation to choose where they want to resolve this."
If Bechtel does bring its case under international law, a special tribunal operating under the rules of the World Bank's International Centre for Settlement of Investment Disputes will hear it. People concerned with the case, such as Bolivian activists, won't be allowed to give testimony, observe the proceedings, or see the arguments. In some cases ICSID's rulings and awards are not made public even after the cases are decided.
Public interest groups frequently point to the North American Free Trade Agreement to illustrate the damage this type of global-investment dispute process has done to domestic policy making, especially environmental legislation. NAFTA has been used repeatedly, and in some cases successfully, by companies trying to overturn domestic environmental laws. A Canadian company, Methanex, is suing the U.S. government under NAFTA in regard to California's decision to phase out the potentially hazardous gasoline additive MTBE. The company claims the phaseout threatens its future profits. If the lawsuit is successful, the United States must either sue to overturn California's law or pay as much as $970 million in damages. Critics have accused Methanex of using NAFTA to undermine the wishes of the government and people of California.
In fact, all three NAFTA countries have been sued under the treaty's investment provisions, frequently over environmental laws. After being sued by U.S.-based Ethyl Corporation over its ban on the toxic gasoline additive MMT (which also is prohibited in California), the Canadian government reversed the ban on MMT and paid Ethyl $13 million in legal fees and damages. Such proceedings, like those under the Holland-Bolivia trade agreement, are closed to public scrutiny or input.
If the global business lobby gets its way, companies like Bechtel may not have to resort to such measures to get compensated for risky investments. Industry has long called for a global agreement that would protect their overseas ventures. In 1998 an international alliance of public interest groups exposed and managed to derail secret negotiations of such a treaty, known as the Multilateral Agreement on Investment. Since then, supporters have been pushing to revive elements of the MAI at the WTO. In the meantime, they appear to be using a piecemeal approach. For example, the Clinton administration is in the process of negotiating the Free Trade Agreement of the Americas, a NAFTA-style treaty that contains the controversial investment rules.
The AFL-CIO's Drake stresses that critics from the labor and environmental movements are not opposed to the idea of expanding international law.
"We just want the procedures to be open and fair," she said. "And we want human rights and labor rights to be just as protected and enforced as corporate rights."
© 2000 San Francisco Bay Guardian
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