Czechs face uphill battle to cancel US investment treaty
Czech Position | 07.04.2011
Czechs face uphill battle to cancel US investment treaty
The Finance Ministry wants to cancel the bilateral investment agreement with the US, but that idea faces powerful opposition
Martin Shabu
A proposal to cancel the current bilateral investment treaty with the United States with a view to getting something better will be put before the Czech government by the Ministry of Finance (MF) in the coming weeks.
The MF wants to end what it regards as the current, costly, and one-sided arrangement that often leaves the Czech state exposed to expensive international arbitration rulings. But that ambition appears to be facing a lot of US opposition, across the Atlantic and on home soil.
According to a Czech diplomat who asked not to be identified, renegotiation is a dirty word for Americans. The director of the Prague-based American Chamber of Commerce, Weston Stacey, said he believes the US Senate is dead set against any changes.
“It is highly unlikely that US Senate would agree to renegotiate because in its view the purpose of a bilateral investment treaty is for both countries to make a promise to protect investments, and a renegotiation would be breaking that promise,” Stacey told Czech Position. ‘In the case of the Czech Republic and the US, abuse of power is a very slight prospect.’
The American Chamber of Commerce, the main grouping of US business interests in the Czech Republic, opposes cancellation of the current agreement. “We believe that it is better for both countries to keep the bilateral investment treaty than to cancel it. Such a treaty provides a legal safety net against abuse of power. In the case of the Czech Republic and the US, abuse of power is a very slight prospect. Perhaps the best way to ‘cancel’ the treaty is to eliminate the prospect of such abuse so that the investment protection provision of the treaty is never invoked,” Stacey added.
The chamber was due to fire off that message to Czech government parties and the opposition this week.
Tuning up for harmony
The Ministry of Finance is tasked with defending Czech interests in international arbitrations spawned by such one-sided treaties. Finance Ministry spokesman Ondřej Jakob outlined its overall tactics in trying to change that situation. “Generally, the Czech Republic tries to use talks over harmonizing investment agreements with non-European Union counties to negotiate changes to those provisions it considers as disadvantageous. In this way we were able to update our agreements with Canada and Tunisia,” he said.
The MF faces a tall order. Many bilateral investment agreements were signed soon after the fall of communism by then-Czechoslovakia, a economically weak state still finding its feet and unable to take a tough negotiating stand.
One primary aim then was to attract foreign investors into what was still perceived as a risky region with uncertain laws, risky privatizations and the chance that the communists might make a comeback. Winning those foreign investment dollars, and foreign investment inflows denominated in other currencies , came at the price of a high rate of investment protection for the cautious investors. The Czech-US deal, for example, was signed in 1991, on the Czech side by then-Minister of Finance and current President Václav Klaus. Now that situation has changed, and the investment treaties look more than incongruous to the current set of Czech leaders often left meeting the bill for past generosity. ‘The agreement is like that with a banana republic.’
One unforeseen downside of the past generosity has been to fuel speculative foreign investments and indirect investments made with the sole goal of later launching legal proceedings and winning windfall damages with the threat or launch of actual arbitration proceedings.
On the Czech side, there is broad cross-party unanimity that the current agreement offers more protection and opportunities to seek damages for Americans than for Czechs. “The agreement is like that with a banana republic,” said Parliamentary Deputy Jan Hamáček (Social Democrats, ČSSD), a member of the lower house Foreign Affairs Committee. “If it were to be in line with current norms it would have to be changed. What is more, we must harmonize these bilateral agreements with the European Union.”
Diplomatic considerations
The MF has been putting pressure on the Czech Ministry of Foreign Affairs (MZV) to help it cancel the current agreement or negotiate a better deal from Washington, even if that could only happen after a 10 year delay. That is the term set by the current treaty for its provisions to remain in place even after cancellation.
So far, the MZV appears to have gotten nowhere, and that might not be very surprising. Alone perhaps on the Czech side, the Foreign Ministry appears hesitant in pushing the US side too fast or too far. The ministry wants to get US President Barack Obama’s approval for the new Czech ambassador in Washington, Petr Gandalovič, and does not want to make waves before that is done. Cancellation of the investment treaty could certainly threaten that approval.
Even if Gandalovič were comfortably installed as ambassador, cancellation would likely dominate his term at the expense of all other relations with the Czech Republic’s strongest ally in terms of international security.
But the Czechs appear to have missed the boat in pushing for such changes when the US was seeking to set up a missile defense radar base in the country, a top Czech government official who asked not to be identified told Czech Position. President Obama’s reset of relations with Russia announced last year resulted in the dumping of a US-led anti-missile shield in Europe, and the Czech Republic was relegated from the main stage of US diplomacy.
