From: Chantell Taylor
Subject: MAI and the World Bank
Date: 15 Jan 1998 01:20:44 GMT
BIC is pleased to forward you the following brief on the link between the Multilateral Agreement on Investment and the World Bank Group. While it must be emphasized that the Bank Group holds no official status in the OECD MAI negotiations, it is nevertheless useful to understand the link and shared interests that have drawn the Bank Group to the table as an MAI advisor. Furthermore, once the MAI is ratified the Bank Group's dispute settlement arm will be one of the instruments used to hear MAI-related arbitration.
This brief falls short of recommending actions or claiming that there is indeed the opportunity for MAI advocacy through the Bank Group's advisory role. Yet BIC does feel that NGOs who are working on the MAI should assess this potential: whether Bank Group participation in the MAI may open a door for public input as the Agreement nears ratification.
As always, comments and questions are welcome.
Bank Information Center
January 13, 1998
By Christopher Chamberlain
Bank Information Center
January 12, 1998
Introduction Over the last year, the Multilateral Agreement on Investment, or MAI, has generated a great deal of concern among members of the NGO community. However, MAI critics have yet to focus on the World Bank Group's quiet role in advising MAI negotiators on certain aspects of the proposed Agreement. While the Bank Group is not an official negotiator of the treaty, it is acting as an "observer" during the negotiations, and is playing an advisory role through its little-known fifth arm, the International Center for the Settlement of Investment Disputes, or ICSID.
This brief does not attempt to explain the problems and issues raised by the MAI, as this area is well covered by other NGOs.(1) Rather, it explains the role that the World Bank Group is playing behind the scenes in helping shape the MAI treaty, and the role that it will play in administering the MAI once it is ratified. The brief concludes that while the Bank Group is not a negotiator, but only an "observer" to the MAI negotiations, it nevertheless provides a potential entry point for NGOs conducting MAI advocacy through its advisory role in the negotiation process.
The MAI, which is being established under the auspices of the Organization for Economic Cooperation and Development (an association of the world's richest countries), essentially provides the private sector a set of guaranteed rights regarding investment and a standardized means of seeking recourse against host governments in investment disputes. For example, if a multinational corporation based in North America felt that it had been discriminated against by the government of an African country through excessive taxation and regulation, nationalization, or expropriation, it would have distinct rights and means to seek recourse under the proposed MAI. The MAI negotiations are scheduled to be finalized in April 1998, but this deadline may be unattainable. In February 1998, negotiators will convene to decide whether the April target can be met.
The proposed MAI includes the following key components:
Non-discrimination: guaranteeing that "host states" (ie states where the investment is taking place) grant foreign investors equal or comparable rights to host state (national) investors;
Restrictions on certain performance requirements: this would prohibit states from imposing special targets or other conditionalities on the activities of investors;
Transparency: ensuring that investment-related laws, guidelines, and procedures are publicly available to ensure predictability;
Funds transfer guidelines: ensuring that host states will not restrict certain investment-related financial transactions, such as the transfer of profits back to an investor's home country;
Tight controls on expropriation: setting international limits and laws governing expropriation and subsequent compensation; and
Dispute resolution: establishing binding arbitration procedures to settle investment-related disputes between states and investors and between host and home states.
There is nothing new about investors seeking recourse from host governments for alleged discriminatory treatment. Historically, these disputes have been fought out in national judicial systems in the host country or country of the business's origin, or through various third-party arbitration and conciliation mechanisms. The implication of the MAI lies in the fact that it seeks to create an international treaty which, by recognizing new rights of investors and establishing standardized provisions for binding arbitration, further strengthens the upper hand of the private sector in the increasingly deregulated global economy.
Introducing the Bank Group's ICSID (2)
The World Bank Group's involvement in the MAI is largely being carried out through the International Center for the Settlement of Investment Disputes (ICSID), the Bank Group's third-party mediation body. With a mere handful of staff and an administrative budget of less than one million USD, ICSID is the lowest-profile, least-known member of the Bank Group. Created in 1966, ICSID, like the Bank's private sector arms, was established as an autonomous (ie legally separate) entity from the World Bank. ICSID's Secretary-General is Ibrahim Shihata, the World Bank's Legal Vice President and General Counsel, and its chairman is Bank President James Wolfensohn.
Why Does ICSID Exist?
According to its introductory homepage, the Bank Group created ICSID with "...the belief that an institution specially designed to facilitate the settlement of investment disputes between governments and foreign investors could help to promote increased flows of international investment." In this capacity, ICSID acts as a conciliation and arbitration body for such disputes that involve its 126 member states.
ICSID offers an impartial alternative to the potentially biased approach of settling investment disputes through national legal systems. If, using our example above, the dispute between the North American company and African government was heard in the investor's home country judiciary, there would be a risk--or perceived risk--that the judiciary was biased towards the investor. The converse option of hearing the dispute in the African country's judicial system would also raise the same questions of partiality.
How Does ICSID Work?
It is important to note that ICSID is a voluntary mechanism: both parties of an investment dispute must give their written consent to proceeding through the ICSID mechanism. However, once both parties give their consent in writing, neither party can unilaterally withdraw from the process. Many of ICSID's member countries have provided their general, ongoing consent to settling through ICSID as part of bilateral and multilateral trade agreements and investment laws.
ICSID hears cases through both conciliation and arbitration procedures. Since its inception, ICSID has registered 41 cases, 38 of which have been handled through arbitration and 3 through conciliation.
When conciliation cases are registered through ICSID, ICSID assembles a Conciliation Commission to hear the case. The role of the Commission is limited to clarifying the dispute between the parties, recommending settlements, and working to resolve disputes. At the end of a proceeding, the Commission prepares a report which documents any settlement which is agreed to between the parties, or notes that the parties failed to reach agreement.
Arbitration cases are far more involved. The main distinction is that ICSID's Arbitration Tribunals have the authority to decide judgements and award damages resulting from the proceedings.
To consider a case, the Tribunal uses laws agreed to by both parties to decide judgements, or by default uses the law of the Contracting State (host country) and applicable international law. Once the Tribunal hears the case and makes an award, the award can be appealed, and possibly upheld, revised, or annulled. Final awards that are given by ICSID Arbitration Tribunals are binding.
Under its articles of agreement, ICSID maintains broad Panels of both conciliators and arbitrators. Each contracting state of ICSID can designate up to 4 members to these panels. Panelists are typically distinguished experts in international trade and investment law. By maintaining large Panels comprised of members from a wide range of countries, ICSID ensures that it can appoint conciliators and arbitrators who will operate without a conflict of interest for every claim that is filed.
ICSID's Other Applications
ICSID's role extends beyond its caseload. Like the other arms of the World Bank Group, ICSID also plays an advisory role, conducts research, and produces publications. Its advisory role is especially significant in the context of the MAI negotiations.
ICSID and the MAI
Why Would the Bank Group be Interested in the Establishment of the MAI?
Long before the MAI had gained the attention of the NGO community, the ICSID published an article in its Fall, 1995 Foreign Investment Law Journal entitled "Towards an International Agreement on Foreign Direct Investment?" Written by University of Athens Law Professor A.A. Fatouros, the article discusses the need, as well as a proposed methodology for establishing an international treaty on investment.
In his article, Fatouros says that one of the main justifications for an international investment treaty is that "there is today no comprehensive instrument covering all facets of FDI and encompassing all (or a majority of) home and host countries. An international legal framework may in fact be said to exist, but it is a patchwork (or mesh) consisting of many kinds of norms and instruments, operating at several levels, at varying levels of normative intensity and with extensive gaps as to coverage of issues as well as countries."(3)
By establishing a "bill of rights" for investors, the argument behind the MAI goes, the private sector will be more willing to assume risk and do business in the developing world. The terms of privately-driven development--the regulatory and legal frameworks underlying foreign direct investment--will be standardized, clarified, and strengthened. The private sector will have internationally accepted, transparent, and predictable provisions to invest under. If agreements are not honored by hosting governments, the private sector will have a set of rights and the means to seek recourse under an agreement that supersedes the existing "patchwork" of domestic, host-country regulation and current international law.
Given the World Bank Group's mandate to boost economic growth, its interest in supporting the MAI is clear. With neoliberal economic theory underlying its activities, the Bank Group has long worked to encourage foreign direct investment, placing faith in an unfettered marketplace as key to sustainable development. Indeed, it could be argued that the MAI's intended impact on foreign direct investment is identical to the mission of today's Bank Group: facilitating private investment to promote economic growth. Because the MAI will work to achieve this end, it is obviously in the Bank Group's interest to support the establishment of the agreement.
What is ICSID Doing to Promote the MAI?
Helping to Define the Terms
In the executive summary of its 1996 Annual Report, ICSID states that "another noteworthy activity was ICSID's participation in meetings of an Expert Group convened by the OECD to help develop the dispute-settlement provisions of the projected Multilateral Agreement on Investment." Reportedly ICSID's advisory role in the negotiations has been fairly central in defining the MAI's dispute resolution provisions. While ICSID is only an "observer", as opposed to a "negotiator" of the MAI, much of the MAI's arbitration procedures are being founded on guiding principles and precedents of the ICSID. Thus, while not holding any official negotiating status during the MAI establishment, ICSID is nevertheless influential in its input to the dispute settlement piece of the Agreement.
ICSID as the Main Vehicle for MAI Disputes
ICSID is currently one of the main mechanisms used for the settlement of investment disputes under other multilateral treaties, such as the North American Free Trade Agreement and the Cartagena Free Trade Agreement. While there are different fora for third party arbitration and dispute settlement, ICSID is by some accounts considered to be the eminent body for dispute settlement in the international arena. As one of five fora available for the arbitration of MAI investment disputes, it is thus likely that ICSID will play a significant role in MAI-related arbitration.
The Bank Group is both advising the OECD negotiators on the design of the proposed MAI and is likely to receive a fair amount of business once disputes are raised through its ICSID arm under the Agreement. This role of the Bank Group has potentially important ramifications that should be considered by the NGO community. NGOs may want to consider applying their experience with Bank Group advocacy to ICSID and its role in the MAI.
As the Bank Group plays an increasingly influential role in facilitating private sector development, it is crucial that it must be accountable not only for its own operations--but equally for the extensive advice and assistance that it gives to governments and to the private sector. ICSID, as a member of the Bank Group, must be accountable to the public interest in the same way that IBRD, IDA, IFC, and MIGA must be accountable. If NGOs have concerns about the proposed MAI agreement, they may want to assess whether ICSID could be an entry point for advocacy given its advisory role.
Encouragingly, ICSID claims to operate in a decidedly open manner. Its staff, albeit small, has indicated a willingness to the few NGOs who have contacted it to communicate with the public. Yet despite the fact that it both expresses this willingness to communicate and generates an impressive quantity of publicly-available materials (and public records of its proceedings), ICSID is rarely, if ever, engaged by the NGO community.
While public engagement of ICSID should be considered as the MAI takes shape, there must be a realization that advocacy opportunities may be constrained by several factors. First, ICSID staff and resources are extremely limited. Furthermore, because ICSID is not a direct negotiator of the MAI, concerns that it agrees to in principle may not be translated into the terms of the OECD agreement. Finally, the ICSID is presumably dealing with only one of the several components of the MAI, the dispute resolution provisions.
Nevertheless, ICSID staff have indicated a willingness to discuss both ICSID operations and its role in the proposed MAI openly with the public. Given the leadership role that the World Bank Group plays today in facilitating foreign direct investment, it would be unfortunate for NGOs to overlook this potential opportunity for advocacy as the MAI approaches completion and ratification. (4)
For more information on the MAI and NGO analyses, resources, and advocacy coalitions, BIC recommends contacting Mark Vallianatos at Friends of the Earth--U.S., email: <MValli@aol.com>, address 1025 Vermont Ave NW, Ste 300, Washington DC, 20005 USA.
Sources for section 2: ICSID Homepage, ICSID 1996 Annual Report, ICSID Convention, Administrative and Financial Regulations, Institution Rules, Arbitration Rules, and Conciliation Rules.
A.A. Fatouros, "Towards an International Agreement on Foreign Direct Investment?" ICSID Review/Foreign Investment Law Journal vol. 10 no.2, (Fall 1995): 188.
For information on contacting the World Bank Group, please contact the Bank Information Center at firstname.lastname@example.org, or Bank Information Center, 2025 I St. NW, Ste. 400, Washington, DC 20006, USA; tel: +202-466-8191, fax: +202-466-8189.
Program Associate, Early Warning System Bank Information Center
2025 I St NW, Ste. 400
Washington, DC 20006, USA
tel: + 202 776-0620, fax: + 202 466-8189
From: Chantell Taylor <email@example.com>
Subject: MAI/World Bank clarifications
Date: 15 Jan 1998 18:17:46 GMT
There has been many questions about the last posting - "MAI and the World Bank" - so I'm sending this to hopefuly clarify.
Chris Chamberlain wrote:
The Bank Information Center is an international nongovernmental organization that monitors the policies and projects of multilateral development banks, like the World Bank, and acts as a clearinghouse for information on the MDBs. BIC is based in Washington DC. While not limiting ourselves to any particular constituency, our primary mission is to service NGOs and civil society groups based in developing countries.
Definition of the World Bank Group:
The World Bank Group/World Bank distinction is as follows. The World Bank is comprised solely of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). These two agencies make loans (market-based and concessional, respectively), to the bank's borrowing-member governments.
The World Bank (IBRD and IDA) is part of the World Bank Group--a larger "family" of international agencies which, while legally separate from each other, share administrative offices, coordinate many activities, and have the same President (and largely share the same Board of Directors). The other members of the Bank Group besides IBRD and IDA are the International Finance Corporation, which makes loans and provides other services to private project sponsors (ie businesses); the Multilateral Investment Guarantee Agency, which provides non-commercial risk insurance to private investors; and the International Center for the Settlement of investment Disputes, which is covered in my memo. The latter three agencies are legally autonomous, and are legally separate from the World Bank.
Collectively these agencies are known as the World Bank Group.
Hope this clears things up. I haven't received any conference mail yet, or else I would be able to respond to questions as well.
Program Associate, Early Warning System Bank Information Center
2025 I St NW, Ste. 400
Washington, DC 20006, USA
tel: + 202 776-0620, fax: + 202 466-8189