International Investment Agreements (IIA) regime and investor-to-state dispute settlement mechanism (ISDS): Implications for Colombia
International Investment Agreements are the agreements that set out the provisions for the protection of the investments for multinational corporations (MNC) and possible dispute mechanisms. The investor protection provisions between Colombia and the UK are contained in the UK-Colombia Bilateral Investment Treaty (BIT) that was signed by both parties in 2014.[i]
Investment protection standards and dispute settlement mechanisms have raised legitimate questions from multilateral bodies, governments, and civil society. Of particular concern is the inclusion of an ISDS mechanism, whereby individual foreign investors may bring claims against host state governments for breach of the investment protection standards. MNCs in these cases can sue states through a secretive parallel legal system, with arbitrators that sit outside national judicial systems.
There are several MNCs in the process of suing Colombia for policy changes related to the environment and climate change, as well as decisions taken by the Colombian Constitutional Court protecting the rights of indigenous peoples. Between 2016 and 2022, 20 lawsuits were filed against Colombia[ii], and whilst the information on how much each company is suing the State for is not available, from the published figures this amounts to just over US$13.2 billion, equivalent to approximately 13% of the nation’s 2023 budget; close to Colombia’s planned expenditure on education in 2023.[iii]
The 2022 Intergovernmental Panel on Climate Change report highlighted the risks of ISDS being used to challenge climate policies.[iv] The very prospect of claims being filed against a government creates a “regulatory chill”, as investor protections generally place enforceable obligations on states, meaning investors can win cases even if they have violated domestic law or other international norms.
According to the UN Conference on Trade and Development (UNCTAD), the risk of private companies using the ISDS system to challenge climate policies is of major concern. They highlight that reforms to the ISDS mechanism are “essential” to ensure investment treaties and their dispute resolution systems “don’t hinder states from achieving a just transition to low-carbon economies”[v]
In June 2015 the Colombian Government passed a law implementing Colombia’s National Development Plan 2014-2018. This law amongst other things banned exploration for or exploitation of non-renewable natural resources, as well as the “construction of oil and gas refineries”, [vi] in the Páramos.[vii] According to the Alexander von Humboldt Institute, the Colombian Páramos are high altitude eco-systems, the most extensive on earth and they supply more than 70% of the country’s population with water.[viii] They are also important in terms of carbon sequestration and include wetlands recognised as having global significance by Ramsar.[ix]
The mining ban resulted in three MNCs filing for millions of dollars. One being the Canadian Mining Giant Eco-Oro[x] (formally Greystar Resources Ltd) who filed a lawsuit claiming USD $696 million[xi] in compensation and won – the final amount awarded is currently being decided. This case rung alarm bells with UNCTAD because the Canadian Investment Chapter in its Free Trade Agreement was of the newer variety and supposed to have contained safeguards that explicitly allowed a country to regulate to protect their climate.[xii] In its assessment of the Eco Oro case, it states that this ISDS decision ‘signals that measures taken for the protection of the environment can be challenged and deemed in violation of International Investment Agreements’.[xiii] Two other multinational mining companies are in the process of suing Colombia: Galway Gold for $196 million and Red Eagle for $118 million due to the measures adopted to protect the Páramos.[xiv] States have increasingly raised concerns about the calculation of damages and the award of ever greater sums of compensation in ISDS.
Equality and Social Justice Law – Colombia
In October 2022, the Petro government moved a law on Equality and Social Justice designed to raise around 4.4 billion dollars[xv] to invest in social spending, through a surtax on the income tax of oil and coal companies.[xvi] The executive director of the Council of American Companies threated to sue Colombia in international tribunal if the Petro Government’s tax reform passed.[xvii]
Questioning of the ISDS mechanism
The International Arbitration regime heavily favours investors who, raising democratic concerns that an implicit or explicit threat of ISDS will result in a regulatory chill with governments delaying action on climate change, failing to protect human and environmental rights, or passing legislation in favour of protecting health. For Colombia specifically, added to this list is the difficulty of implementing some of the measures agreed in the 2016 Peace Accord, or those that will need to be agreed in the current Peace Talks.
Alternatively, if Colombia proceeds with the measures it is outlining in order to decarbonise and to promote green energy, ISDS provisions will considerably increase the amount of compensation paid, thereby raising the cost of the transition and reducing the public funding available for green investments and peace.
The UNCTAD report concludes highlighting that “the broad protections these treaties provide, and the large amounts many ISDS tribunals have awarded to investors (particularly in the extractive industries), can make it more difficult for governments to keep warming below 1.5°C.”
As a result of the impacts of ISDS some governments have been including a range of qualifying clauses to investor protections while others have not included ISDS: between 2017 and 2021 only one third of trade and investment agreements contained ISDS. [xviii] In an effort to reform some of the major issues with this mechanism, the EU has more recently been proceeding with the implementation of multilateral Investment Court, a two-tier investment court system. Consisting of a first instance tribunal and an appeals tribunal; appeals are not possible under the current ISDS system. Tribunal members would be assigned to specific cases on a rotational basis. Any pre-existing BITs between the EU member States and the relevant third country, including the ISDS mechanisms contained therein, will be terminated.
Other countries are also questioning this mechanism and qualifying how and when it can be used, for example, in North America, Canada and the United States ‘recent treaties display a wide spectrum of ISDS reform approaches, from improved procedures to omission of ISDS,’ and Australia only selectively includes ISDS (with procedural improvements) and New Zealand will not include this mechanism in their agreements.[xix]
UK and Colombia Bi-lateral Investment Treaty.[xx]
The UK-Colombia BIT has an initial treaty term of 10 years (until 10th October 2024). With an automatic renewal for an indefinite term. The Treaty includes modalities for unilateral termination but not for amendments or renegotiation. Termination after 10 years requires a one-year notice period by the country wishing to terminate it:
“ARTICLE XV (2): This Agreement shall remain in force for a ten (10) year period and shall be extended indefinitely thereafter. After ten (10) years, this Agreement may be denounced at any time by any of the Contracting Parties, by serving a twelve (12) month prior notice, sent through diplomatic channels.”
If the UK-Colombia BIT is terminated unilaterally it has a “survival”/”sunset” clause of 15 years, this means that any investments made before the termination notice becomes effective will remain in force for a further 15 years.[xxi] However if the BIT is terminated by the consent of both parties, it is possible for the parties to decide to neutralise the survival clause, which entails clarifying that, upon termination of treaty by mutual consent, the survival clause expires.
It is important that the UK and Colombia unilaterally agree to end the BIT and to neutralise the survival clause.
Currently there is one case against Colombia using the UK-Colombia BIT – that of the Cerro Matoso Mine in Alto San Jorge, Cordoba, where the Zenú people are suffering the consequences of the Cerro Matoso project, one of the largest open-pit ferronickel mines in the world. The arbitration, filed with the World Bank’s International Centre for Settlement of Investment Disputes, is in connection with royalties. The BHP group is using the UK Colombia BIT to sue Colombia via a subsidiary company – South32 – since Australia generally does not include investor protections and ISDS mechanisms in their FTAs.
- The UK needs to consider doing the same as many other countries and omit ISDS mechanisms from their bi-lateral investment treaties and FTAs. There is an opportunity to do this with the UK/Colombia BIT from October 2024. Terminating this agreement and neutralising the Sunset Clause will allow Colombia to regulate to address climate issues and fulfil its commitments to peace and human rights. It will also demonstrate that the UK has a real and tangible commitment to support Colombia on climate change and peace.
- Take part in our campaign when it starts in October and write to and/or meet with your MP about to discuss this and ask them to raise this with the UK Government. Ask if their party is committed to neutralise ISDS clauses from the UK BITs and FTAs and not to include them in future trade and investment agreements.
26 September 2023
[i] Many countries’ Free Trade Agreements (FTA) contain an investment chapter. However, as the UK was a member of the European Union, the EU primarily negotiated on trade and related issues, and its member states had the competency for investor protection (protecting the investments of UK registered or headquartered MNCs in third countries).
[iv] The 2022 Intergovernmental Panel on Climate Change; UNCTAD Investment Treaties Regimes need Reforms in order to ensure that they Support Climate Action, 6 September 2022
[v] Watson Farley and Solicitors, ISDS and Climate Change: What Happens Next? https://www.wfw.com/articles/isds-and-climate-change-what-happens-next/
[vi] Constitutional Court Communique, 8 February 2016
[vii] However, there was a loophole in this law in that it excluded mining operations with contracts and environmental licenses before 9 February 2010, and oil and gas operations with contracts and licenses before 16 June 2011. As a result, the loopholes were challenged by NGOs and others by means of a Tutela brought before the Constitutional Court. The Court ruled that the loopholes, “ignore the constitutional duty to protect areas of special ecological importance [and] put at risk the fundamental rights of the entire population to access good quality water.” This ruling helped to close the loopholes.
[ix] Ramsar sites are classified under the Convention on Wetlands of International Importance. The Convention states “the conservation and wise use of all wetlands through local and national actions and international cooperation, as a contribution towards achieving sustainable development throughout the world”.
[xii] Cited in Watson Farley and Solicitors, ISDS and Climate Change: What Happens Next? https://www.wfw.com/articles/isds-and-climate-change-what-happens-next/
[xiii] Cited in Watson Farley and Solicitors, ISDS and Climate Change: What Happens Next? https://www.wfw.com/articles/isds-and-climate-change-what-happens-next/
[xiv] Transnacional Institute y Colectivo de Abogados José Alvear Restrepo, ISDS Colombia, Boom de demandas de inversores extranjeros, May’23.
[xv] Law 388 of 97, art. 58-71.
[xvi] Fierro Morales et al, Análisis desde la perspectiva de amenazas socioambientales de una mina de oro a cielo abierto: caso de estudio La Colosa, Cajamarca (Tolima), February 2016, AngloGold Ashanti previously operated in Colombia through a subsidiary called Sociedad Kedahda S.A, registered in Colombia first in 1999
[xvii] Transnational Institute (TNI) y el Colectivo de Abogados José Alvear Restrepo (CAJAR), ISDS, Colombia, Un boom de demandas de inversores extranjeros, May 2023.
[xviii] Business and Human Rights Resource Centre, Corporate rights or human rights? How Trade and Investment Agreements Could Threaten Human Rights Due Diligence Laws, September 2021
[xix] UNCTAD, Reforming Investment Dispute Settlement: A Stocktaking, 2019
[xx] A bilateral investment treaty (BIT) is an agreement between two countries regarding promotion and protection of investments made by investors from respective countries in each other’s territory.
[xxi] With respect to investments admitted before the date on which the notice of termination of this Agreement becomes effective, the provisions of this Agreement shall remain in force for an additional term of fifteen (15) years from such a date.