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COMMENTARY: Freeport's threat of arbitration simply a ploy to block mining reform
Under the ISDS scheme there seemed no longer a balance between protection of investors and the right of governments to regulate.
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“We cannot just give up our rights that have been given in the CoW,” Richard C. Adkerson said in a press statement received by The Jakarta Post on Monday, Feb. 20 2017, adding that his company employed some 32,000 workers. (JP/Dhoni Setiawan)
"PT Freeport Indonesia [FI] reserves of all its rights [...] including the right to commence arbitration to enforce all provisions of the contract,” Freeport-McMoRan’s CEO Richard C. Adkerson asserted on Monday, referring to a protracted dispute with the Indonesian government.
That threat is quite similar to those made by many other multinational companies (MNCs), which fear decreases in their huge profits following reforms by their host governments.
Until around eight years ago international arbitration within the investor-state-dispute settlement (ISDS) mechanism had become a powerful weapon exploited by MNCs to circumvent national regulations and bully governments, notably in developing countries, to postpone or annul any reform or to silence environmental NGOs.
At the time of its launch several decades ago, ISDS was indeed vital to encourage foreign investment into developing countries where legal systems were still weak and where many governments were corrupt. It was a forum designed to resolve conflicts between investors and host governments.
ISDS has therefore been written into bilateral investment and trade agreements or treaties. One of the most popular arbitration tribunals is the Washingtonbased International Center for Settlement of Investment Disputes (ICSID), a unit of the World Bank.
The ISDS mechanism allows foreign investors to bypass local courts and seek compensation in international tribunals such as the ICSID, for what they claim to be damages caused by expropriation or policy or contractual changes by host governments.
The problem is that within the ISDS scheme only investors or companies can bring lawsuits. A government may defend itself but it cannot sue a company. The mere threat of an ISDS claim by big MNCs can alarm host governments, especially those with bad international reputations, to act in favor of the investor.
