Corporations are using secret trade-investment agreements to attack sustainable development and subvert democracy in a resource-constrained world.
By Francesca Rheannon
Have you ever wondered why, with so many corporations and governments pledging to give the green light to Millennium Development Goals (by 2015) and Sustainable Development Goals (after 2015), progress is practically non-existent?
As a new report shows, it’s because the traffic light is permanently on red, held there by the powerful corporations who control the switch.
And here’s how they do it:
- A Swedish energy company sues the German government to the tune of €700 million for “breach of legal obligations” when Germany decides to forego nuclear power in favor of green energy in the wake of the Fukushima Daiichi nuclear power plant catastrophe;
- Canadian gold mining company Pacific Rim sues the government of El Salvador in the World Bank’s trade court for $315 million for denying it a permit to build a mine, despite the fact that the mine would poison the drinking water supply of rural communities for generations.
- The South Korean government decides to hold back on implementing a low carbon incentive system in the country’s auto industry for fear of being taken to court by U.S. car manufacturers for violation of the U.S.-South Korea Free Trade Agreement.
What do these cases have in common?
They are all examples of global corporations using the arbitration tribunals of a burgeoning system of often secret international trade-investment agreements – some 4,000 so far – to “resist and attack sustainable development efforts” and human rights, according to a new report released by The Democracy Center, Unfair, Unsustainable And Under The Radar.
While the above cases are mostly still in litigation, the vast majority of similar suits have the intended result: they subvert democracy in favor of corporate interests, either outright through winning legal judgments in the hundreds of millions to billions of dollars or through intimidating national governments into eliminating or restricting social and environmental policies out of fear of corporate legal action.
Privatized Justice For Corporations Trumps Public Law
Their target? Most often it is control of the vital but dwindling resources of our planet: water, minerals, arable land – and, of course, fossil fuels, the very last drop of which they aim to wring out of the earth.
This “slow-moving coup d’état,” in the words of Lori Wallach of Public Citizen, has grown in the last 30 years from a trickle to a flood of cases in trade tribunals the world over, using venues such as the World Bank -- even as that august institution issues reports in favor of “Inclusive Green Growth” as “The Pathway To Sustainable Development:”
It’s the very definition of cognitive dissonance:
"To get to sustainable development, we need well-designed, inclusive green growth policies that can improve social welfare for all, promote careful stewardship of natural resources, and respect the delicate balance of the planet."
Globalization Perverts System For Redress
The Democracy Center’s Thomas McDonagh, author of Unfair, Unsustainable and Under The Radar spoke with CSRwire about the report. He says this system of privatized justice for corporations originally emerged out of a desire to protect investments in developing countries from arbitrary expropriations, but it has evolved at an incredible pace over the past 30 years into something much more sinister
"As our level of integration of the global economy has increased, these trade and investment deals have exploded and the types of rights they grant to investors has also increased dramatically. The opportunities for corporations to use international legal mechanisms to gain easier access to natural resources has intensified and so they have begun to use these investment agreements in order to gain easier access to markets and natural resources"
"It has become a weapon in the armory of corporations to undermine citizen organizing and government policy-making to further their own interest."
Rigging the Law For Corporations, Against The People
McDonagh (and The Democracy Center) got involved in the issue when Bechtel tried to privatize the water system of Cochabamba, Bolivia. When the public erupted in massive protests against this attempt to restrict access to a vital resource, the Bolivian government canceled the contract. Bechtel used the trade-investment dispute system to sue the Bolivian government for $50 million, even though it had invested only $1 million into the project. McDonagh:
"The system allows corporations to sue not only to recover costs already incurred but also expected future revenues. Egregious claims under the investment rules system are at the center of the conflicts over natural resources."
Claiming compensation for “indirect appropriation,” as this gambit is called, is just one of the rules the trade investment dispute system has evolved to allow corporations to trump states’ rights. Others include the right to bypass domestic courts, the right for favored nation status and other mechanisms to privilege global corporations over local businesses and the right to avoid controls on capital flows.
The Infrastructure of Subversion
Supporting and abetting this complex net in which sustainable development efforts are ensnared is a growing army of corporate lawyers unaccountable to any democratic process and highly invested in perpetuating the system – so much so, McDonagh says, that they are pushing corporations to take legal action against governments in investment disputes.
"There has been an investor-state dispute boom over the past two decades, promoting new cases and investor-friendly rulings, and lobbying against reform. We also argued that the current investment arbitration regime is neither fair nor independent, but biased towards the interests of investors."
And Wall Street has got its piece of the action: a derivatives market where investors fund the litigation in return for a piece of the compensation awarded. (What will they think of next? A derivatives market in life insurance? Oh, I forgot. They already have.)
As McDonagh’s report makes clear, when millions or billions are taken out of national treasuries to pay the damages awarded by these corporate-friendly courts, those funds are no longer available for teachers, health systems, or domestic green development.
Sustainability Guidelines No Match For The Power Of Trade Tribunals
One major problem is that sustainable development has a lot of lovely recommendations and guidelines behind it, but no accountability and enforcement. The UN Guiding Principles on Business and Human Rights are voluntary. Participation in the GRI is voluntary. McDonagh makes the point:
"What we've observed is a complete separation between the rights given to corporations and the enforcement mechanisms that come with them on the one hand and the responsibility of corporations and the ability of governments to hold them to account.
So this leads to asymmetry, where a government policy, such as a public health policy or a policy to restrict gold mining or protect drinking water, results in governments being sued for hundreds of millions of dollars in arbitration court, whereas, on the other hand, when corporations are involved in human rights abuses or the operations of the corporation are causing environmental destruction, no mechanism exists for holding corporations responsible for their actions. Although the UN Guidelines and recommendations are welcome, they remain guidelines and recommendations."
Prioritizing Human Rights
So, what is to be done? First of all, we need a radical change of frame, McDonagh told CSRwire.
"We really need to question the idea that corporations should have legally enforceable rights that preempt the laws of governments. Human rights should come before the rights of corporations."
One key reform is to establish alternative investment rules that put human rights first. Among other measures, these could encompass the following, according to the Democracy Center report:
- Fair dispute resolution that includes local and regional courts;
- Binding obligations (not “guidelines”) that hold corporations accountable;
- Providing a space for sustainable economic development policies by eliminating provisions that favor foreign global corporations, like most favored nation status and capital controls.
A good first step is for governments to refuse to enter into trade agreements that favor corporate interests over national policy, like the one Australia has pledged to.
At a time when the very survival of humans and other living things is in doubt, when there is literally no time to lose in implementing a far-reaching sustainability agenda, when producers of green technology are champing at the bit for an opportunity to scale up their operations in time to save the planet: we can’t let global corporations keep the light on red.
We need to put limits on their power so the light turns green for the Future.