Philippines ICSID’d

is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

When people talk about the World Bank, they’re actually talking about a family of institutions: the International Bank for Reconstruction and Development (otherwise known as the IBRD, otherwise known as the World Bank), the Multilateral Investment Guarantee Agency, the International Finance Corporation, the International Development Association, and -- most importantly right now for the Philippines -- the International Center for the Settlement of Investment Disputes.

The ICSID first came to (relative) public view when the German company Fraport sued the Philippine government for P18 billion in relation to its investment in NAIA3. After a much publicized victory by the government, the whole thing became a downer when the said “victory” was later overturned and the case was ordered to start, essentially, at the very beginning.

For students of public international law, the ICSID represents a huge development in that it allows entities normally considered as “objects” in international law to sue a State. As basic constitutional law declares, private individuals or entities are not allowed to sue the State on the basis of immunity, unless, that is, if the State gives its consent to be sued. The ICSID short circuits these obstacles and allows such private entities to protect their investments that they made in a foreign country.

So, for the purpose of encouraging investments among countries, the ICSID scheme was devised by the IBRD, thus accounting for the ICSID’s seat at the IBRD headquarters in Washington, DC. The jurisdiction of the ICSID is set out in Article 25 of the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention):

“The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.”

The ICSID has capacity for conciliation and arbitration. Conciliation requests are rare but arbitration is more common. However, very much like the Permanent Court of Arbitration (which international lawyers affectionately keep referring to as neither being “permanent” nor a “court” nor “arbitrates”), the ICSID is not a tribunal but rather a “framework.” The ICSID maintains a list (panel) of people who can act as conciliation or arbitrators.

It must be emphasized that ICSID proceedings are self-contained: no appeals to local courts, no diplomatic protection and once ICSID is engaged all other remedies are deemed excluded. The ICSID Convention obliges each contracting State to recognize and enforce pecuniary obligations imposed by awards of ICSID tribunals as if they were final judgments of the State’s own courts. Note that State immunity may still hold, but then that State will have to answer for possible treaty violation.

As it stands, the Philippines has two pending cases at the ICSID, with a potential for a third. As mentioned above, there is Fraport AG Frankfurt Airport Services Worldwide vs. Republic of the Philippines (docketed as ARB/11/12). This case, which practically signals a mere beginning (or all back to square one), is taking place after the government had reportedly already spent P2 billion in legal costs. But, as ruled by the ICSID just a little before Christmas Day last year, the original decision (made August 2007) favoring the Philippines was annulled when a second set of arbitrators was said to have found a procedural lapse. Apparently, Fraport was improperly disallowed by the first set of arbitrators from producing evidence relating to alleged agreements among Piatco shareholders as to managerial control of the subject airport.

The second case is Baggerwerken Decloedt En Zoon NV vs. Republic of the Philippines (docketed as ARB/11/27). This is a P4 billion suit against the present government when the latter unilaterally terminated the contract with Baggerwerken Decloedt en Zoon NV for the proposed Laguna Lake Rehabilitation Project for being allegedly a “midnight deal” of the past administration. Reportedly, that conclusion was reached due to a Cabinet secretary making the utterly laughable claim that a unilateral termination of the contract can be done without penalty to the government. The Belgian company subsequently shut down its operations, with an official of it being quoted in the newspapers as saying that it’s “impossible to do business in the Philippines.” Evidently, Belgian Prime Minister Yves Leterme wrote a letter to our government expressing his concern. The latter has yet to reply.

Another ICSID case could come if renegotiations fail after a contract with another foreign company has been unilaterally terminated. It’s really interesting that the government’s intensity in fighting with foreign investors (as well as fighting with the Supreme Court and the Catholic Church, and even the military) is inversely proportional to its determination to defend the State against the MILF or resist China’s Kalayaan advances.