The Netherlands take a central position in the current debate on BITs and international investment agreements (IIAs). A new report, Socialising Losses, Privatising Gains, highlights how more than 10% of all known investment treaty claims make use of Dutch Bilateral Investment Treaties (BITs).
Socialising losses, privatising gains
75% of these cases was brought on by mailbox companies with no real economic substance in the Netherlands, making use of the vast web of Dutch BITs that grant extensive privileges and protections to foreign investors. Faced with the (threat of) investment claims that limit their policy space to regulate, a number of states have resorted to terminating their BITs with the Netherlands. The Netherlands should fundamentally reconsider its investment policy, say the authors of the report.
Investor to state dispute settlement mechanisms in BITs enable foreign investors to bring investment claims against states over public interest regulation that might negatively affect their profit expectations. Investment tribunals can award compensation that runs into hundreds of millions of dollars. Even the threat of claims can cause states to reconsider or water down proposed policy measures.
Following the earlier example of South Africa, Indonesia is one of the countries that has recently terminated its BIT with the Netherlands after Dutch BITs were used to threaten crippling investment claims.
Socialising Losses, Privatising Gains cites how Indonesia, under threat of BITs claims, was forced to withdraw legislation aimed at restricting open-pit mining in fragile rainforests. The report also describes how mining giant Newmont used the threat of an investment claim to secure an exception to a new law aimed at processing raw materials in Indonesia as part of the country’s development plan. Newmont could threaten this claim through its Dutch mailbox company.
Instead of closing the ‘Dutch route’ to bring investment claims against third countries, the Dutch government actively facilitates the establishment of mailbox companies seeking to avail themselves of Dutch BITs. Every year, € 4000 billion worth of foreign investment flows through the Netherlands, 80 percent of which is accounted for by so-called ‘special purpose enterprises’ (SPEs).
The negative impacts of extensive BIT protections and ISDS are increasingly on the political agenda of developing countries. Recently, following a billion dollar claim from Vodafone, based on the Dutch-Indian investment treaty, India too announced a complete revision of its existing investment treaties.
In Europe, there is mounting public pressure to abandon ISDS.
A consultation by the European Commission on the ISDS mechanism in the proposed trade agreement between the EU and the US (TTIP) yielded an 150,000 responses, an unprecedented response. No less than 97 percent of respondents spoke out against inclusion of ISDS in the proposed EU-US TTIP agreement and other trade and investment treaties.
Urged by Parliament, Dutch trade minister Ploumen is currently undertaking an internal analysis of the Dutch investment policy. However, the much needed fundamental overhaul of the Dutch BIT model is not in the offing. Recommendations for change are likely to follow proposals to amend the investment protection framework as put forward by the European Commission. These proposals are largely cosmetic and fail to adequately address the risks and fundamental flaws associated with the current BIT/ISDS system, warn SOMO, TNI, Both ENDS and Friends of the Earth Netherlands. The organisations call on the Dutch government to fundamentally review all Dutch BITs and let sustainable development and wider social interest prevail over investor privilege.
The extensive Dutch BIT network also poses a threat for the Netherlands itself. So far, the Netherlands have never been on the receiving end of an ISDS claim, but changing global patterns of investment increase the likelihood of developed countries being sued before ISDS tribunals.