The centre was created in the 1960s in an effort to alleviate some of the demands on the World Bank president to mediate in disputes between foreign investors and their host countries.

Lately, with frictions on the rise in some parts of South America, disaffected multinationals are turning to the ICSID with greater frequency. In turn, some countries, including Venezuela, Ecuador and Nicaragua, are chafing at the ICSID’s sweeping jurisdiction over foreign investment legal disputes. These critics complain that the process fails to provide sufficient deference to government regulation of foreign investment, and permits international tribunals to resolve matters that should be left to the local courts.

Advertisement

In May, Bolivia’s president, Evo Morales, formally reversed the policy of earlier Bolivian administrations and set in motion a process to renounce the international convention that established the ICSID.

However, the legal implications of such a move remain unclear. Apart from signing onto the ICSID Convention, countries such as Bolivia have also concluded networks of investment protection treaties that promise foreign investors access to the ICSID (and sometimes other forms of) arbitration. Unless, and until, all of those investment protection treaties are revoked,which could take many years, some lawyers are depending on ICSID arbitration remaining a viable option for arbitrating disputes – even if some governments have torn up their ICSID membership cards.

Recently, Telecom Italia moved to test this theory by filing a massive arbitration claim against Bolivia at the ICSID. The company claimed that it was the victim of a “creeping expropriation” in Bolivia and it accused the government of trying to acquire its valuable telecommunications assets. When Telecom Italia requested ICSID arbitration of the dispute in October, Bolivia protested that its withdrawal from the facility precluded the ICSID from handling the case. Telecom Italia responded that Bolivia is still bound by the arbitration promises contained in the numerous investment protection treaties that the country has concluded with European governments.

A panel of arbitrators now must decide whether the ICSID remains a viable option for investors such as Telecom Italia – which invoke the protection of investment treaties – in the face of Bolivia’s withdrawal.

Legal and business observers will be watching closely. Although not strictly binding on subsequent cases, any arbitration ruling will mark the first time that arbitrators have had to grapple with a dilemma that could loom large if other South American governments pull the plug on the ICSID.

Luke Peterson is a journalist and research consultant based in New York City. He publishes a news bulletin on international investment treaties for a Canadian think tank. (www.investmenttreatynews.com)