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UK-Colombia Bilateral Investment Treaty

Volume 569: debated on Wednesday 23 October 2013

I am grateful to Mr Speaker for selecting this debate.

Bilateral investment treaties are a long-standing mechanism to protect foreign firms and investors undertaking risky overseas investment from the danger of expropriation or policy changes in the destination country that could reduce the financial return from those investments. Bilateral investment treaties have generally been seen as benign, technical instruments, but developments in their use in the past 10 years or so have raised doubts about their benign character. Those doubts certainly arise in the case of the UK-Colombia bilateral investment treaty, which I understand is due to be ratified in the next few weeks. I will air some of those doubts in this debate and press the Minister to clarify the Government’s thinking in response to some of the concerns that are being raised.

Bilateral investment treaties allow investors to sue elected Governments if policy changes adversely affect their profits, but neither the host Government nor the communities affected by the investment have reciprocal rights. There is at least a question on whether that balance is correct.

Last October, under a bilateral investment treaty, a tribunal established by the International Centre for Settlement of Investment Disputes, which is part of the World Bank, fined Ecuador $1.8 billion—a sum equal to Ecuador’s entire annual education budget—for terminating a contract with Occidental Petroleum Corporation after reaching the view that Occidental broke Ecuadorian law when selling its production rights. I notice that on 30 September 2013, the tribunal decided to stay the enforcement of that fine for the time being, but it is not clear that handing a technocratic tribunal the power to impose fines in that way is necessarily the right thing to do.

By the end of 2012, corporations had launched more than 500 cases under bilateral investment treaties against 95 Governments. Compared with the preceding three decades, the number of disputes since the year 2000 has risen two-and-a-half-fold. The treaties seem to be evolving into something rather different from what they were originally intended to be. We need to reflect on how we want the treaties to be used, on what is appropriate to put into them and, indeed, on when it is appropriate to enter into such a treaty.

Governments across the world are now reviewing their policy on bilateral investment treaties. I understand that Norway and South Africa are terminating their treaty, and Australia and the US have decided to restrict the scope of their treaty. I am delighted to see the Minister in his place this afternoon as I know he has other pressing business, and I hope he will use this debate to set out the British Government’s thinking. I would welcome a review in the UK along the same lines as we are seeing elsewhere.

The UK-Colombia bilateral investment treaty will be laid before Parliament shortly and will provide far-reaching rights to foreign investors in Colombia. I am worried that the treaty might not take into account the potential risks it poses to securing human rights in Colombia. The Minister knows very well the human rights position in that country. In the first six months of this year, 11 trade unionists and 37 human rights activists were killed—nobody has been charged in relation to any of those killings. Over the summer there were strikes and protests across Colombia, and 16 demonstrators were killed by the police and the army, with more than 90 people imprisoned. Paramilitary groups continue to operate widely. There is already substantial opposition on human rights grounds to the ratification of the EU-Colombia free trade agreement.

I ask the Minister to take the opportunity presented by the forthcoming ratification, and indeed by other negotiations for new investment treaties at EU level, to consider whether it is appropriate to have a general review of UK policy towards bilateral investment treaties.

I have three areas of concern about the current use of bilateral investment treaties that I think make a review necessary. First, it is not clear that the human rights impact of such treaties is in line with the UK Government’s policy. That is a particularly pressing concern in the case of Colombia, where the human rights situation is so precarious, particularly in relation to workers’ rights and land rights.

According to the United Nations High Commissioner for Human Rights, Colombia has the largest number of internally displaced people in the world after Sudan—there were 5.7 million internally displaced people in Colombia by the end of the 2012—largely due to land-grabbing around mineral and resource-rich sites. Colombia has enacted a land restitution law to restore more than 2 million hectares of land to people from whom it had been wrongly taken, but that restoration has not yet taken place. Human Rights Watch reported last month that only one family have to date had their land returned.

There is serious concern that a bilateral investment treaty could make the implementation of land reform even more difficult; it could trigger demands from foreign investors for compensation if, for example, cases were brought forward in which land occupied by an investor that had previously been appropriated from someone else and then sold to the investor was restored to its original and rightful owners. Such processes could potentially scupper the prospects for land restitution, which is widely recognised as key to Colombia’s future stability.

I am grateful to my right hon. Friend for giving way, for the powerful case he is making and for bringing this debate to the House. The recent UK action plan on business and human rights was strongly welcomed because of some of the difficulties that he raises, but it is unfortunately silent on remedy and redress for victims of such abuses. Indeed, recent legislation has restricted the ability of victims of actions by UK companies overseas to access justice through the UK courts. Does he agree that it is essential that we build on the momentum that the Government and others have created to ensure adequate redress when bilateral investment treaties are breached, and that otherwise we risk undermining the host country’s ability to meet its international human rights obligations? Would he also welcome a response from the Minister on that, either today or at a later date?

I will address the action plan on business and human rights in a couple of moments. My hon. Friend is absolutely right on the need for people to be able to obtain redress, and I would certainly welcome a comment from the Minister on that topic.

ABColombia, the consortium comprising Christian Aid, the Catholic Fund for Overseas Development, Oxfam and others, is particularly worried about the potential threat to land restitution. The UK-Colombia treaty risks making it impossible for Colombia to restore land that has been stolen from its previous owners, thereby potentially restricting the implementation of future peace agreements with the guerrillas and limiting reparations to victims of human rights violations. Land injustices have been at the centre of the long-running conflict in Colombia, as the Minister knows. I gather that a treaty with Ethiopia is likely to come up next, which raises a similar set of issues on land and rights, so there is a pressing case for carrying out a policy review.

My hon. Friend the Member for Wigan (Lisa Nandy) has reminded the Chamber of the action plan on business and human rights, which the Government published last month and which, as she says, has been widely welcomed. The action plan makes the point that investment agreements should,

“incorporate the business responsibility to respect human rights, and…not undermine the host country’s ability to…meet its international human rights obligations or to impose the same environmental and social regulation on foreign investors as it does on domestic firms.”

That is welcome reassurance. The review that I am suggesting would enable the Government to make good on that commitment in the specific context of bilateral investment treaties.

Secondly, there is a worry that investment rules in bilateral investment treaties could restrict the ability of Governments to set policies in the interests of their public. The investor-state dispute settlement mechanism allows foreign firms to sue Governments when and if they feel that their interests have been violated by a new law or policy. That is a pretty big limitation on the right of citizens to elect a Government to change the policy of the preceding Government.

I am chair of the trustees of Traidcraft, the fair trade organisation, which has drawn the issue to my attention—I declare that interest, although the role is unpaid. I share that concern about the restriction on the ability of developing country Governments to pursue policies that have worked elsewhere—such as land reform or requiring investors to give preference to local suppliers.

The concern, however, does not apply only in developing countries. The US tobacco firm, Philip Morris, is suing Uruguay and Australia over their anti-smoking laws. The company argues that warning labels on cigarette packs or plain packaging prevent it from displaying its trade mark effectively, causing a loss in market share. The threat of legal action against the UK under a bilateral investment treaty might be a factor in thinking about the introduction of plain packaging proposals here, so developing countries are certainly not the only ones in the frame. The US company Lone Pine Resources Inc. is demanding US $250 million in compensation from Canada for introducing a moratorium on fracking, because of environmental risk concerns. Corporations have used investor-state settlement provisions to challenge environmental, land use, energy and other laws.

Thirdly, I am worried that such claims bypass domestic courts and are heard in private—behind closed doors—in tribunals made up of three arbitrators, behind closed doors at the International Centre for Settlement of Investor Disputes. My hon. Friend the Member for Wigan reminded the House that any such decision is extremely difficult to change. In some instances, the existence of the cases is barely known at all; even when they are known, the reasons for decisions or the level of awards by a tribunal are not always disclosed.

There is concern that the system has led to bad decisions, which is particularly important given that an arbitration tribunal can make unlimited monetary awards. In 2012, dispute settlement compensations awarded to corporations ranged from US $2 million to, in the Ecuadorean case that I mentioned, nearly $1.8 billion; lots of pending claims total billions of US dollars. Disputes between multinational companies and Colombia under the UK-Colombia treaty would be confidential and heard by the international tribunal, despite the growing recognition worldwide, not least on the part of the UK Government, that transparency is vital to democratic processes, good governance and the rule of law.

Finally, there is at least a question mark about whether the treaties do, in fact, succeed in attracting additional foreign investment into signatory countries. A number of studies suggest no significant correlation between a country’s level of foreign direct investment—we all want to increase such levels in developing countries—and the decision to adopt treaties that include those broad investor protections.

I hope, therefore, that the Government will review their policy on bilateral investment treaties, in view of the lack of transparency, the use of the investor-state dispute settlement mechanism, the imbalance of rights and responsibilities, and the potential to undermine human rights in countries where investment is taking place. I am grateful to the Minister for his readiness to respond. I accept that part of the responsibility on the subject rests with the Department for Business, Innovation and Skills, but the Foreign and Commonwealth Office clearly has a key role as well. I look forward to what he has to say in response.

It is a great pleasure to serve under your chairmanship this afternoon, Mr Hollobone, and I congratulate the right hon. Member for East Ham (Stephen Timms) on securing the debate. The right hon. Gentleman has a long-standing interest in such issues, as evidenced in his declaration in the Register of Members’ Financial Interests about his activities with Traidcraft, to which he alluded.

The Government’s aim in developing bilateral investment treaties is to provide a high level of protection for companies from one country that invest in the other country. In particular, we aim to ensure that British investors in a country with which we have a bilateral investment treaty will receive equal treatment compared with other foreign and domestic investors.

In general, the UK Government believe that such treaties have a positive impact, protecting investors against unfair expropriation and mistreatment, and encouraging investment. As the right hon. Gentleman said, however, bilateral investment treaties need to strike the right balance between providing protection for investors and giving Governments the space that they need to regulate in the public interest. The UK aims to achieve that balance in its treaties and, now that competence for foreign direct investment has transferred to the European Union, in treaties concluded by the EU.

To begin addressing some of the comments and questions of the right hon. Gentleman, increasing transparency in governance at home and internationally is a priority for the Government. Next week, I am pleased to say, we will be hosting the Open Government Partnership summit here in London, and that will be a key theme. We have also pushed for greater openness in investment arbitration, and I am pleased that new UN rules on transparency will enter into force next year. The hon. Member for Wigan (Lisa Nandy) made an intervention about redress in particular, but we will write to her with a fuller answer.

In response to the related concern about giving away privileges to distant tribunals, while the system is clearly not perfect—hence, for example, our work on transparency—overall we see such tribunals as positive. They have long been a feature of the international system and are considered generally to provide a dependable way for investors to achieve justice, where it cannot be achieved through the domestic legal system of the country in which they have invested. The tribunals are, therefore, important to guaranteeing investors’ rights and to preserving stable investment climates, which, in turn, help to encourage economic development. Without access to an international tribunal, such benefits would be lost. Furthermore, if we did not have tribunals, what should replace them? The right hon. Gentleman did not answer that question in his speech—I am happy to accept an intervention, should he wish to make one.

The right hon. Gentleman asked whether the Government intend to review their policy on investment protection. As I have mentioned, competence for foreign direct investment has now transferred to the EU. Since that transfer in 2009, the UK has not negotiated any new treaties. It retains the right to do so, but it has no immediate plans to negotiate new treaties. It does not, therefore, make sense for the UK to launch a full-scale review of our policy on such matters at present. That said, I reassure him that, in ongoing EU negotiations, we are pushing hard to achieve that important balance—guaranteeing fair treatment for investors, without an adverse impact on Governments’ rights to regulate in the public interest. That is also a principle that we will apply in any new treaties that the UK negotiates.

Our intention is to place before Parliament shortly a ratification instrument that will bring the UK-Colombia bilateral investment treaty into force. We believe that the treaty broadly achieves the right balance. Indeed, it includes specific provisions designed to preserve the right of the UK and Colombia to regulate for “reasons of public purpose”.

I am grateful for the way in which the Minister is responding to the debate. Will he explain the significance of the timing, given that he said that competence has moved to the European Union? I am told that the Colombia treaty was drafted almost 20 years ago. What is the significance of the timing, given that ratification will take place shortly?

The right hon. Gentleman has more confidence in these matters than me. He referred to the next few weeks. I am reliably informed that it will be shortly, which is not necessarily in the next few weeks, but no doubt my colleagues in the Department for Business, Innovation and Skills will bring the matter to the House at the appropriate time and will be able to explain exactly, if I cannot. It is worth saying that the UK received authorisation from the European Commission to enter the Colombia treaty into force, as the right hon. Gentleman said, in spring 2013 and the Colombian note confirming its ratification in the summer.

The treaty is an important symbol of the close relationship that the UK has enjoyed with Colombia in recent years. To answer the right hon. Gentleman’s point about the importance of such treaties to the countries with which they are contracted, it is worth saying that the Government of Colombia is actively looking forward to the treaty being ratified. I believe that it is a positive move. It will cover all existing British investments in Colombia, which currently total £2.5 billion. The Government hope that when the treaty enters into force it will provide a further incentive for additional investment in Colombia by increasing the level of legal protection.

The right hon. Gentleman rightly raised a concern about the human rights situation in Colombia, including land rights. I assure him, as I have the House on a number of occasions when we debated the matter, that progress has been made, as noted in our 2012 human rights report. Around 170,000 victims have been provided with reparations under its victims and land restitution law and the Colombian Government are taking steps to reform the judicial system. We continue to press them to speed up the processing of cases and to eliminate impunity.

In 2012, experts from the Land Registry provided technical advice to the agriculture Ministry on land registration issues. Security for claimants and those returning to their land is a key concern, and our embassy in Bogota has funded a security risk analysis in potential restitution zones. However, almost five decades of conflict have caused many people to be displaced, as the right hon. Gentleman said. We welcome the significant progress made to date in the peace negotiations, in which provisional agreement on land reform has been reached.

I am grateful to the right hon. Gentleman for raising the concerns. The Government want bilateral investment treaties to provide a high level of protection for British companies investing in Colombia, but we also want to strike the right balance between providing protection for investors and giving Governments the space they need to regulate in the public interest. We are committed to supporting international efforts to increase transparency. We recognise that the current system of tribunals is not perfect, but it generally provides a dependable way for investors to achieve justice.

Competence for foreign direct investment has now transferred to the EU and the UK has not negotiated any new treaties since 2009, so we have no plans to review our policy on investment protection. However, in ongoing EU negotiations and any new treaties the UK negotiates, we will push for the right balance between investors and the public interest.

Question put and agreed to.

Sitting adjourned.