How Wealthy Corporations Use Investment Agreements to Extract Millions From Developing Countries
A case in point: When Ecuador placed a windfall tax on foreign oil operations, French and U.S. companies filed claims—and were awarded more than $800 million.
By Nicholas Kusnetz, Katie Surma
January 14, 2024
Anival Tanguila, a Quichua leader from the Corazón del Oriente Community, stands next to decommissioned Perenco oil infrastructure in the Ecuadorian Amazon on March 22, 2023. Credit: Katie Surma/Inside Climate News
QUITO, Ecuador—When Rafael Correa entered Ecuador’s presidency in 2007, the nation faced an opportunity and a challenge. Ecuador’s economy depended on oil, and global crude prices were near a record high. Much of the oil was extracted by foreign companies, however, so as prices surged more wealth began flowing overseas.
More than a third of Ecuadorians were living in poverty, and Correa had come to power as a leftist promising “radical, profound and quick changes to the current model of so much exploitation, of so much injustice.”
Soon after taking office, Correa increased a recently enacted windfall tax on oil companies. The idea was to use the tax as leverage to extract better terms from the companies, and this fight against foreign firms quickly became a high-profile pillar of Correa’s broader campaign to assert the nation’s sovereignty.
The oil companies fought back, however, and they turned to an obscure corner of international law that extended beyond Correa’s reach. Within months, two oil companies working as partners—the independent Anglo-French firm Perenco and Burlington Resources, a subsidiary of ConocoPhillips—ceased paying the tax and sued the government through a system of international tribunals known as investor state dispute settlements, or ISDS. The system allows foreign investors to sue governments before tribunals outside the jurisdiction of national courts, if they can make a case that their contracts or existing trade or investment treaties have been breached.
The companies argued that the tax, which had been enacted by Ecuador’s Congress and upheld by the nation’s courts, violated their contracts and investment treaties that Ecuador had signed with France and the United States. The companies demanded compensation for lost profits to the tune of $3.1 billion.
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https://insideclimatenews.org/news/14012024/wealthy-corporations-extract-millions-from-developing-countries-isds/
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