The World Bank hosted International Centre for Settlement of Investment Disputes (ICSID) has ruled that it is perfectly acceptable for multinationals to change the country of their legal headquarters in order to protect their investments. The controversial ruling was made on 21 October in a judgement to establish whether ICSID had jurisdiction to rule on a case between Bolivia and private water utility Aguas del Tunari, owned largely by US multinational Bechtel.

The statement by ICSID does not establish jurisprudence but it does set a significant precedent. In effect, it turned supposedly Bilateral (ie between two countries) Investment Treaties (BITS) into a worldwide investment treaty to protect multinational profits. “It is common practice to choose a corporate headquarters in a country that offers benefits in terms of taxes and a bilateral investment treaty,” the tribunal ruled.

“This ruling has created a damaging precedent,” said Pablo Solón of the Bolivian Movement against Free Trade. “It suggests that BITS are no longer just bilateral agreements protecting a particular country’s investors, but are instead treaties that offer a green light for multinationals from any country to relocate themselves in order to protect their profits and allow them to sue sovereign governments.”

Details of rulings by ICSID are rarely released, but the judgement was published in a Bolivia government paper in December 2005 summarizing the state of negotiations with the privatized water utility, Aguas del Tunari.

Aguas del Tunari was expelled from Cochabamba after a popular uprising in protest at vastly increased water rates and expropriation of communal water supplies. The company, largely owned by US multinational Bechtel (55% of shares) followed by Spanish company Abengoa (25%) immediately launched a legal suit at ICSID for more than $50 million.

Aguas del Tunari moved its headquarters from the Cayman Islands to Holland shortly before protests erupted in April 2000 to ensure that it was based in a country that had one of the 24 Bilateral Investment Treaties signed with Bolivia. The Bolivian Government argued before ICSID that the Bilateral Investment Treaty with Holland did not apply as Aguas del Tunari did not have one cent of Dutch capital in the company.

However, ICSID ruled that it didn’t have evidence that “the transfer of headquarters to Holland in November 1999 was done in anticipation of the events that led to its departure in April 2000.” It also said that it hadn’t uncovered proof “that there had been an intention of fraud by transferring the headquarters from the Cayman Islands to Holland” and said the Bolivian government’s argument that the company wasn’t Dutch had no basis.

ICSID was established in 1966 to arbitrate on conflicts between private foreign investors and Governments. It is the main tribunal chosen as the mediator in bilateral investment treaties signed between Governments. Whilst it is a supposedly neutral body, it is hosted by the World Bank and has invariably favoured multinational complainants.  This ruling makes that apparent bias even starker.

“This ruling makes clear that ICSID isn’t just partial to the interests of multinationals, it unashamedly exists to fight for their interests,” said Pablo Solón.

Whilst the ruling gave Aguas del Tunari the right to proceed with the case, behind the scenes Bechtel and Abengoa have been negotiating a settlement with the Bolivian Government. On 3 January 2006, the Coordinadora del Agua y Vida (who led the protests against Aguas del Tunari) received a copy of the proposed agreement. According to the accord, the Bolivian Government agrees to pay a symbolic payment of $2 to Bechtel and Abengoa in order to buy back the 80% of the company that they own together whilst Aguas del Tunari have agreed to drop their case in ICSID.

The decision to settle for a nominal sum was no doubt partly informed by a major international campaign against the legal suit by activists across the world. However the Coordinadora have expressed concern about the lack of transparency around the agreement. “We are concerned about the possible content of various unpublished documents and the economic costs of the liabilities Aguas del Tunaria has inherited.” They have demanded the public release of all relevant documents before the agreement in signed on the 14th January.