ICSID's Neoliberal Approach to Environmental Regulation in Developing Countries: Lessons from Latin America

Abstract

ICSID, the preeminent foreign investment dispute settlement, today, was established in 1966 pursuant to the 1965 Washington Convention. The demise of colonialism and its concomitant investment protection mechanism and industrialized countries’ desire to protect capital flows to newly-independent developing countries saw the establishment of international institutions, it was said to create an impartial and stable forum, governed by a set of procedures, to settle investment disputes. To critics, however, ICSID emerged to fill the need to protect foreign investment in developing countries and the promise that investment protection would attract foreign investment. Thus, by placing investment disputes within the international domain, Western States ensured that their economic interests remained within structures that were accessible to (and dominated by) them. So while Western jurist have generally praised ICSID’s efficacy, since its emergence ICSID’s legitimacy has been subject to much criticism in the developing world. This has been driven by what is perceived to be its neoliberal agenda to advocate economic liberalization, due to its attachment to the World Bank which advocate for free trade and open markets, privatization, deregulation, and decreasing the size of the public sector while seeking an increased role of the private sector in modern society. It is argued, inter alia, that ICSID attachment to the World Bank; tribunals harbor a neoliberal predisposition to foreign investment protection and promotion and pay inadequate attention to host-States’ domestic welfare. Skepticism towards ICSID has been most acute from the perspective of Latin American States, who have traditionally harbored a deep abhorrence for international dispute settlement mechanisms. Despite early skepticism, due to their subsequent desire to start attracting foreign investment to supplement their meager economies Latin American States became more toleration of international dispute settlement of claims arising from investor-State agreements. These States are once again retreating from the system of investor-State arbitration. Since 2007, numerous Latin American States have revoked their ICSID membership. ICSID’s approach to foreign investment disputes involving States’ implementation of policies aimed at environmental regulation, which have caused loss to foreign investors in Latin American States reveals this with momentous diversity. ICSID’s neoliberal approach to environmental governance is acutely illustrated in tribunals’ approach in cases such as Santa Elena v Costa Rica, Tecmed v Mexico, Metalclad v Mexico and Aguas del Tunari v Bolivia to name a few. To combat ICSID’s hegemony a coalition of various Latin American and Caribbean States, known as the Bolivarian Alternative for the People of the Americas (ALBA), a Latin American organization established as an alternative to the proposed Free Trade Area of the Americas (FTAA), have advocated the creation of an institution that mimics ICSID’s functions, but which offers a more legitimate arbitration process. Latin American States view ICSID’s approach to disputes foreign investment dispute settlement involving Latin American States as an encroachment on their sovereign authority to self-determine their domestic environmental policies.