Water, national sovereignty and social resistance: bilateral investment treaties and the struggles against multinational water companies in Cochabamba and El Alto, Bolivia.

• Author: Spronk, Susan

Abstract

Over the last 20 years, bilateral investment agreements (BITs) have become an important part of the neoliberal 'free trade' agenda to open markets to foreign investment and protect the corporate 'right' to profit over the human right to water. Drawing on two case studies of urban water privatisation in Bolivia, this article argues that BITs act as conditioning frameworks that restrict the ability of governments to meet the demands of citizens for rights such as access to water. Recently, however, Bolivian social movements have launched successful resistance strategies and won important victories against neoliberal globalisation: two private water contracts with multinational corporations have been cancelled. This article analyzes the lessons learned from these two Bolivian cases for social movements elsewhere, especially the importance of international solidarity in pressuring multinational corporations to drop lawsuits.

Keywords:

Urban Water Supply Privatisation, Bilateral Investment Treaties, International Court for the Settlement of Investment Disputes, World Bank Group, Human Right to Water

1. Introduction

   'They could never take away our right to water, because they could never take away our thirst.'

   --Eduardo Galeano, Uruguayan writer and environmental activist In one of his last speeches to the nation on March 6, 2005, the soon-to-be-toppled President Carlos Mesa warned Bolivian citizens in a televised address that they could not exercise their democratic rights to decide the future of their nation's natural resources. Should the gas and water companies that were privatised be expropriated, Mesa warned, the Bolivian state would have to pay millions of dollars to the multinational corporation that had invested in Bolivia's privatised water, gas, and oil companies. Mesa's threat was not a hollow one. Indeed, over the last 20 years, neoliberal administrations in Latin America and elsewhere have slowly dismantled policies that provided a degree of national, democratic control over economic policy, creating legal mechanisms that entrench the corporate 'right' to property and profit in their place.

   As the tide has turned against neoliberalism in Bolivia, these policies are being challenged by a powerful social movement that aims to return natural resources to public hands. The recent cycle of social protests was sparked by the victory of Bolivia's first 'Water War' of April 2000, when the local population of Cochabamba succeeded in throwing out the US-based multinational corporation, Bechtel, which had been granted control over the municipal water system only six months before. Over the next five years, protests proliferated and spread across the country, eventually succeeding in throwing out two Presidents within two years and pressuring the government to cancel the second private water contract in La Paz and its poor, satellite city El Alto. The election of Evo Morales, who campaigned on a promise to nationalize natural resources and reverse the damage to the nation's indigenous people wrought by over two decades of neoliberalism, is also one of the fruits of this struggle.

   One of the many challenges facing President Morales and his government, however, is the legacy left by a series of neoliberal administrations which have entrenched the Bolivian state into series of binding agreements that protect foreign investors' rights to property and profit. More specifically, Bolivia is party to 24 bilateral investment treaties (BITs) that have helped to create an international legal system that seeks to create a world in which capital flows freely across borders while labour remains locked in place.

   The purpose of this essay is to discuss the political effects of BITs and how they have been challenged by the Bolivian social movement for water justice fighting the corporate agenda of water privatisation. We argue that the international legal system of investor protection that has been created by BITs is fundamentally undemocratic in two basic respects. First, BITs are conditioning frameworks that aim to restrict the abilities of governments to meet the demands of citizens for basic needs and human rights, such as access to a safe water supply. Second, the states and institutions that have created these conditioning frameworks lack mechanisms to make the system accountable to citizens. The first two sections of the article provide a brief overview of BITs and their effect on the quality of democracy. The third and fourth sections describe how multinational corporations have used this emerging legal system to protect their 'right' to make profit from selling water services to the citizens of Cochabamba and La Paz-El Alto in Bolivia. The conclusion reviews some of the lessons that can be learned from the Bolivian social movements that are fighting back against the corporate agenda in an effort to assert popular sovereignty over public policy.

2. Bilateral Investment Treaties

   2.1 Neoliberal Structural Adjustment and the Proliferation of BITs The proliferation of BITs is a legacy of the Third World debt crisis of the 1980s. As is well-known, the 'solution' to the debt crisis was neoliberal structural adjustment programs (SAPs), which were designed, orchestrated and imposed by international financial institutions such as the International Monetary Fund (IMF) and the World Bank on heavily-indebted states. SAPs included measures to privatise state-owned enterprises and open borders to trade and investment. Despite claims to the contrary, SAPs did not aim to foster sustainable nor equitable economic growth but rather to ensure that debtor countries could earn the foreign currency necessary to pay back the money borrowed from private banks and G-7 countries in the previous decades (McMichael, 2000).

   As a result of structural adjustment, capital-poor, heavily-indebted countries such as Bolivia have increasingly found themselves caught in global framework of competition for foreign investment. The proliferation of bilateral investment treaties (BITs) has been a central part of the effort of Third World states to attract foreign investors (read multinational enterprises) to invest in to-be-privatised enterprises and utilities (Elkins, Guzman and Simmons, 2006, Van Harten, 2005). BITs are designed to further break down barriers to investment, thereby creating more freedom for corporations to pursue profits. Since the early 1990s, many heavily indebted governments have signed BITs with countries where potential investors are located, particularly the advanced industrialized nations of the global North. The number of BITs has jumped from 389 in 1989 to 2,265 in 2003 and now involve more than 176 nations (UNCTAD, nd) (see Table 1).

   2.2 BITs and the Water Sector

   BITs have served as the primary legal instruments used by foreign direct investors to protect their interests in the water sector. To date, there have been ten known investment-treaty related disputes in the water sector, eight of which have been registered at the International Court for the Settlement of Investment Disputes (ICSID). Private enterprises have preferred to bring their disputes relating to water privatisation to the ICSID for several reasons. First, the ICSID is intimately connected to the World Bank, which has played an active role in promoting water privatisation on the global scale. Second, parties can carefully restrict the amount of information that the ICSID relates to the public concerning the case since both parties must agree to have arguments and decisions made public, providing investors with a veto on information transmission. And third, the purpose of the ICSID is to promote future investment by protecting current investments.

   BITs are a form of international hard law that creates legally enforceable rights and entitlements for foreign investors. As legal scholar Gus Van Harten describes, the 'system of investor protection, in terms of its scope and effectiveness, goes well beyond other international regimes that permit individualized access to international governing institutions', such as international human rights law and humanitarian law (2005, pp. 603-4). By contrast, soft law initiatives that aim to protect the human right to water, such as the General Comment 15 of the United Committee on Economic and Social Rights, contain no provisions for binding arbitration or damage awards. As Timothy O'Neill concludes, while it may be possible to advance a human rights claim to protect the right to water, "the core problem is not identifying the rights and norms which need to be upheld and protected under international law, but rather seeking enforcement of those norms" (2006, p. 381). Indeed, the implementation of the human right to water crucially depends on the local state's 'right to regulate' to ensure, for example, that access to the existing system is non-discriminatory or to prevent private companies from establishing an unfair pricing system and excessive charges for water supply and sanitation services (Morgan, 2004, Rosemann, 2005). Since these soft law initiatives lack effective enforcement mechanisms, in practice, the international system of investor protection created by BITs potentially trumps initiatives--either international initiatives or local regulatory law--that aim to enforce the human right to water.

   In the first decision arising from an investment dispute involving the water sector at the International Court for the Settlement of Investment Disputes (ICSID), the goal of investment promotion outweighed the local state's right to regulate. At the end of July 2006, the ICSID court ruled in favour of Azurix, a spin-off from the US-based corporation Enron, against the Argentine government. In the lawsuit, the company claimed that the government was using political calculations to interfere with the setting of water tariffs in its concession in the province of Buenos Aires. The court ruled that Argentina breached...