Politics

The “Investor-State”

Over the past twenty-five years, corporations have aggressively pushed for global, regional, and bilateral trade and investment agreements that favour their interests by limiting the ability of signatory countries to set conditions on global trade and investment. These agreements give foreign corporations “investor-state” rights, allowing them to directly sue a government of another country if they believe their “right to profit” has been affected by a law or practice in that country. These laws or practices may include local economic development programs, domestic food sovereignty rules, and environmental laws that are thought to be “excessive” and to hinder trade.

Ecuador

In 2006, Ecuador cancelled an oil-exploration contract with Houston-based Occidental Petroleum. In 2012, after Occidental filed a suit before an international investment tribunal, Ecuador was ordered to pay a record $1.8 billion – roughly equal to the country’s health budget for a year.

El Salvador vs. Pacific Rim

This suit was filed in 2009 by Pacific Rim – a Canadian mining company (later bought by Australian corporation Oceana Gold) – after the tiny Central American country refused to allow it to dig for gold. Pacific Rim said it had been encouraged by the government of El Salvador to spend “tens of millions of dollars to undertake mineral exploration activities”. But, the company alleged that when valuable deposits of gold and silver were discovered, the government, for political reasons, withheld the permits it needed to begin digging. The company’s claim, which at one point exceeded $300 million, has since been reduced to $284 million – still more than the total amount of foreign aid El Salvador received last year.

El Salvador countered that the company not only lacked environmental permits but also failed to prove it had obtained rights to much of the land covered by its request: many farmers in the northern Cabañas region, where the company wanted to dig, had refused to sell their land. A verdict is still pending in the case.

Canada

In 2015, a trade tribunal ruled that the government of Canada pay oil giants ExxonMobil and Murphy Oil $17.3 million. These damages were awarded in a NAFTA investor-rights dispute over how much money the companies were required to invest in research and training in Newfoundland and Labrador.

ExxonMobil, the world’s largest publicly traded oil company, and U.S.-based Murphy Oil complained to an international trade tribunal when a joint federal-Newfoundland and Labrador regulatory board said the corporations should spend millions of dollars more in the province in exchange for their rights in the Hibernia and Terra Nova offshore oil projects.

Use and Abuse

Investors have used this system not only to sue for compensation for alleged expropriation of land and factories, but also over a huge range of government measures, including environmental and social regulations, which they say infringe on their rights. Multinationals have sued to recover money they have already invested, but also for alleged lost profits and “expected future profits”.

Big Money

On average, there is one new suit filed by a corporation against a government per week. The sums awarded in damages are so vast that investment funds have taken notice: corporations’ claims against states are now seen as assets that can be invested in or used as leverage to secure multimillion-dollar loans. Increasingly, companies are using the threat of a lawsuit to exert pressure on governments not to challenge investors’ actions.

Good for Business?

These investor-state dispute measures have become controversial. Businesses say they are needed to guarantee fair treatment while critics say the measures give corporations undue power to challenge governments’ ability to regulate on behalf of health, safety and other goals.

Brazil is setting a positive example which has often been overlooked. The country has never signed up to this system – it has not entered into a single treaty with these investor-state dispute provisions – and yet it has had no trouble attracting foreign investment.

Exit Strategy

There are now thousands of international investment agreements and free-trade acts, signed by states, which give foreign companies access to the investor-state dispute system, if they decide to challenge government decisions. Disputes are typically heard by panels of three arbitrators; one selected by each side, and the third agreed upon by both parties. Rulings are made by majority vote, and decisions are final and binding.

There is no appeals process – only an annulment option that can be used on very limited grounds. If states do not pay up after the decision, their assets are subject to seizure in almost every country in the world (the company can apply to local courts for an enforcement order).

While a tribunal cannot force a country to change its laws, or give a company a permit, the risk of massive damages may in some cases be enough to persuade a government to reconsider its actions. The possibility of arbitration proceedings can be used to encourage states to enter into meaningful settlement negotiations.

Getting out of this system is not easily done. Most of these international agreements have sunset clauses, under which their provisions remain in force for a further 10 or even 20 years, even if the treaties themselves are cancelled. All the more reason to be VERY cautious and critical of trade agreement talks like CETA and TPP. If we are to have any hope of protecting the environment and social rights in the future, we’d be best to walk away from the negotiations.

Sources:

“Blue Future” – Maude Barlow

http://www.theguardian.com/business/2015/jun/10/obscure-legal-system-lets-corportations-sue-states-ttip-icsid

http://www.thestar.com/news/canada/2015/03/13/oil-giants-win-17m-from-ottawa-under-nafta.html

 

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