Guatemala could be the subject of the first arbitration claim under the dispute settlement provisions in Chapter 10 of DR-CAFTA. This section provides for an ‘Investor-State Dispute Settlement’, which requires that claimants must give a 90 day notice before submitting a claim in Article 10.16.2. Railroad Development Corporation is believed to be the first company to send one of these notices.

The claim concerns RDC’s ownership of a 50 year lease on aspects of Guatemala’s railway infrastructure that they won by bid in 1997. The lease is over Ferrovias Guatemala (RDC’s now subsidiary), which includes nearly 500 miles of track, port facilities and rights of way (which can be exploited for other infrastructure). This must encompass nearly all of the rail in the country, because the CIA World Factbook lists 886kms, with the RDC site reporting the lease at 800 kms. Last August, the Guatemalan government issued a Presidential Decree declaring that the privitsation of ‘rolling stock’ (non-locomotive railcars) was against government interests.

RDC alleges that the decree has indicated to banks, customers and others that there is a general hostility to Ferrovias and so they have been reluctant to use its services — thus meaning less credit and less business. From RDC’s perspective, the acts of the Guatemalan government indicate an attempt to take back over the national rail infrastructure after having abandoned it in the 1990’s (and being rescued by RDC’s efforts under the lease over the past 10 years). A ‘case study’ of the restoration is available on the RDC site.

With the privitisation of the telecoms industry being so central to the agreement and our focus for this project, this will definitely be a case to watch. The deregulation of the telecoms market, especially in states such as Costa Rica, will mean greater investment by foreign corporations. Provisions such as this one, providing for arbitration of disputes, are a kind of double-edged sword — they aim at encouraging foreign direct investment by giving assurances of fairness, but can also be seen as giving foreign corporations too much power.  This sort of Jeckll and Hyde view of FTAs of course generally underlies most discussions of free trade and neo-liberal economics. The goal is to see past these broader depictions to the actual affects of the policies.

In light of the moves towards nationalization taken by Chavez in Venezuela, and his continual promotion of ALBA, this suit might provide a powerful signal to other Central American countries when tackling the deregulation issue.