International Investment Agreements (IIAs) set out the conditions and obligations regarding the promotion and protection of investments made by investors from respective countries in each other’s territory and take the form of Bilateral Investment Treaties (BIT) or other trade agreements including investment chapters. The investor protection provisions between Colombia and the UK are contained in the Colombia-UK Bilateral Investment Treaty that came into force in 2014.[i]
Like many others, this BIT contains a controversial mechanism called Investor-State Dispute Settlement (ISDS), whereby foreign investors may bring claims against host state governments for breach of broadly defined investment protection standards. In effect it allows multinational companies (MNCs) to bypass national legal systems and sue governments introducing any policy changes or regulations that MNCs consider have the potential to affect their profits.
Colombia is facing numerous cases levelled by MNCs using ISDS provisions in the country’s IIAs, over 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. As of 2023, there have been 20 lawsuits filed against Colombia using ISDS and whilst the secretive nature of the ISDS regime means some compensation figures are unknown, the published figures amount to just over US$13.2 billion, equivalent to approximately 13% of the nation’s 2023 budget and close to Colombia’s planned expenditure on education in 2023.[iii]
UN climate scientists warned in the most recent Intergovernmental Panel on Climate Change report (2022) that how ISDS is used by fossil-fuels companies, risks creating “blocks on national legislation aimed at phasing out the use of their assets”.[iv] Merely the threat of claims can create a “regulatory chill” deterring or causing governments to roll back on policies. The binding and enforceable nature of IIAs and ISDS mechanisms means even when investors violate domestic law or international norms, the investor protections can trump policymaking in the public interest.
Challenging environmental protections
The UN Special Rapporteur on human rights and the environment recently presented a report to the General Assembly highlighting ISDS as a “major obstacle to the urgent actions needed to address the planetary environmental and human rights crises”, calling for countries to “unilaterally or jointly terminate existing IIAs that include ISDS”
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], high altitude eco-systems that are the most extensive on earth and 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 ISDS claims against Colombia for millions of dollars. Canadian mining giant Eco-Oro (formally Greystar Resources Ltd) sued for 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. 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 IIAs”. Two other multinational mining companies are in the process of suing Colombia, Galway Gold for USD $196 million and Red Eagle for USD $118 million, due to the measures adopted to protect the páramos.[xiv]
Swiss mining transnational Glencore is suing Colombia for an unknown amount under the terms of the BIT with Switzerland. As owner of Cerrejón, the largest open-pit coal mine in Latin America, Glencore is challenging the Constitutional Court’s 2017 ruling won by the indigenous Wayúu community to stop the diversion of the Bruno Stream on which 40,000 people rely.
Impacting social justice legislation and rulings to protect indigenous peoples’ rights.
In October 2022, the Petro government moved a law on Equality and Social Justice designed to raise around USD $4.4 billion[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 has threatened to sue Colombia using ISDS if this tax reform passed.[xvii] The threat of foreign investor claims could also make it more difficult to implement the 2016 Peace Accord or measures to be agreed in the current peace talks.
Risks involved in ISDS far outweigh any potential advantages.
Attempts have been made at reform including by only using ISDS with restrictive clauses, currently, eleven European countries are leaving the Energy Charter Treaty, the most litigated ISDS agreement, citing the risk of being sued by fossil fuel companies due to their climate action. Even the EU is reforming this mechanism and US President Biden has said he would exclude ISDS from future US trade deals. He states in writing “I oppose the ability of private corporations to attack labour, health, and environmental policies through the investor-state dispute settlement (ISDS) process, and I oppose the inclusion of such provisions in future trade agreements.” Disproportionately hight awards to investors, particularly in the extractive industries, the broad protections severely impact governments abilities to keep warming below 1.5°C, even in those treaties that include additional environmental protection. According to UNCTAD, 175 IIA-based ISDS cases brought by MNC between 1994 and 2021 were in relation to measures or sectors of direct relevance to climate action and environmental protection.[xxi]
These concerns translated into only one third of trade and investment agreements containing ISDS between 2017 and 2021.The Regional Comprehensive Economic Partnership (a 2020 mega-agreement in the Asia-Pacific covering 40% of the world’s population) is notable for not including ISDS,[xxiii] and since it scrapped ISDS, South Africa has seen foreign investment increase by 10%
In May 2023, the Colombian Trade, Tourism and Industry Ministry announced a “review” of some of Colombia’s FTAs and BITS, as over 300 civil society organisations asked the Colombian government to initiate a review with the aim of removing the ISDS mechanism from Colombian treaties.
Colombia-UK Bilateral Investment Treaty.
Currently there is one case against Colombia using the Colombia-UK BIT, that of the Cerro Matoso Mine in Alto San Jorge, Colombia, where the Zenú people previously won a case against the then Australian owners, BHP Group for environmental rights abuses and severe health consequences of what is one of the largest open-pit ferronickel mines in the world. Subsequently BHP Group spun off a company, South 32 the current owner of Cerro Matoso who is using the BIT to sue Colombia, contesting the states’ seeking of allegedly unpaid royalties. BHP Group agreed to pay these royalties (U$D 19.6 million) ahead of their contract renewal in 2011. A year later, following the renewal of its mining contract until 2029, BHP reduced this commitment to USD $1.5 million.[xxviii]
With little evidence that BIT treaties correlate strongly with increasing foreign direct investment flows, and the high risk to the policy space of both countries and especially to the sustainable and socially just development and implementation of the 2016 Peace Accord, as well as being a hindrance to current peace negotiations in Colombia, both countries should keep pace with the trend against ISDS and agree to bilateral termination of the BIT.
The Colombia-UK BIT has an initial treaty term of 10 years (until 10th October 2024), with an automatic renewal for an indefinite term. It 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.”
The treaty’s “survival” or “sunset” clause that would keep provisions in place for a further 15 years following termination[xxix] However if the parties terminating the treaty by mutual consent, they can decide to neutralise the sunset clause at the same time, meaning that it would not come into effect.
To terminate the Colombia-UK BIT and neutralise the Sunset Clause
To consult with Colombian and International civil society organisations especially on policies to do with foreign investment, just transitions and green energy in order to address the issue of ISDS clauses in trade and investment agreements
To ensure that Colombia does not include ISDS in future trade and investment agreements, remove ISDS from current agreements and seek agreement to neutralise the sunset clauses.
[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
[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”.
[xi] The exact amount of the payout is yet to be decided and published.
[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.
[xxiii] Business and Human Rights Corporate rights or human rights? September 2021
[xxvi] ABColombia, Indigenous and Afro-descendant Peoples Win Court Case against Multinational Mining Company https://www.abcolombia.org.uk/indigenous-win-court-case-against-cerro-matoso/ “BHP Billiton made an agreement to pay U$D 19.6 million to the Colombian government to cover unpaid royalties. However, having agreed to pay this in 2011, a year later, and following the renewal of its mining contract until 2029, the Colombian Minister of Mines reported, “BHP Billiton is offering to pay only USD $1.5 million – less than a 12th of its previous offer.”
[xxix] 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.