Why Can Corporate Interests Trump Sovereign Rights?

Why Can Corporate Interests Trump Sovereign Rights?

Chakravarthi Raghavan Pt2: International trade agreements have given corporations the rights colonial powers used to wield -   October 3, 14
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An international trade and development expert, Chakravarthi Raghavan, served as Chief Editor of South-North Development Monitor, SUNS, 1980-2005 and now as Editor Emeritus. He formerly served as Editor of Third World Economics & Geneva Representative of Third World Network. Raghavan has authored numerous books including A Rollback for the Third WorldRecolonization: GATT, Uruguay Round and Third World, and Developing Countries and Services Trade: Chasing a Black Cat in a Dark Room, Blindfolded.


Why Can Corporate Interests Trump Sovereign Rights?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

In Canada, the Quebec government passed a law restricting, prohibiting the use of fracking to get natural gas. Well, now a company that is based in Calgary, owned in the United States, is now suing the Quebec government under the NAFTA treaty for millions of dollars because they say their right to exploit this gas has been taken away. And this type of lawsuit, this threat of lawsuit against sovereign countries and governments who try to enact certain public policy is taking place all over the world.

Now joining us to talk about this from Geneva is Raghavan. He's an international trade and investment expert. He served as chief editor of South North Development Monitor (SUNS) from 1980 to 2005. He now serves as editor emeritus. He served as the editor of the Third World Economics and as Geneva representative of Third World Network. And, as I said, he joins us from Geneva.

Thanks very much for joining us.


JAY: So talk a little bit about the background of how it is we get to a place where corporations can have the ability to sue sovereign governments.

RAGHAVAN: Actually, you have to look at it in a historical perspective. The historical perspective is [incompr.] during the colonial era, the industries on the colonizing countries, imperial countries, had superior rights in the colonies. Then came the period of decolonization, when all those privileges got lost and there was a kind of a tension between the world colonial rulers who wanted to continue to keep their economic interests in these countries and these countries wanting to help themselves, industrialize, etc. There was a kind of a conflict of interest in these matters.

And the World Bank at that time was time to encourage foreign investment in these countries, essentially for mining, etc., but also for those who want to set up industries in order to meet the demands of the local market. That was--at that time, that was when it was going on.

The problem arose where the foreign industries were worried that when they go and invest in a particular former country, the newly independent country will go and nationalize their property and expropriate their property.

So the World Bank stepped in and suggested this convention, international convention for settlement of industrial disputes. That is to say, if there is a dispute arises by an industry in a particular developing country about the expropriation or whatever it is that has taken place, it will go to the tribunal for judgment.

In the initial stages, because we are essentially dealing with real--what is called in [incompr.] old-time philosophy expropriation. Then came the whole philosophy, the expropriation, the whole philosophy of the bilateral investment treaties, which enabled corporations who invest to sue--to take the governments to court before the tribunal.

But the governments could not take the corporation to court. And then even the expropriation was defined in a manner that was much wider than the original idea was. So it was in this context that these problems arose.

Initially, the tribunals began, when the tribunals were being held, [incompr.] very small group of lawyers based in New York, as well as in Europe, about not more than 12 or 20, they act as advocates for the corporations. They also sit on the panel as arbitrators. And they're also people who move in and out of revolving door within government and their profession, so that there is an enormous amount of conflicts of interest involved. But nobody bothered about all these conflicts of interest, so long as the panel judgments were essentially against developing countries.

Then came all this NAFTA and other bilateral investment treaties which enabled the corporations to sue the governments. At that stage it began to create problems, because environment regulations were challenged on the ground that the environment regulation was taking away their profit. Labor regulations were challenged on the ground that they were taking away their profits. When this began to happen like this, the governments got worried. And even more than the governments, the [incompr.] civil society got worried, and they began this agitation, which is where we have now come to.

JAY: Raghavan, the companies would argue, and people that support these type of free-trade agreements that allow for this kind of process, they would argue that, for example, if an American company or some other company goes to Quebec and wants to exploit its natural gas, it has to be treated in a way that it knows the rules, it knows the laws, and it has to be treated the same way any Canadian company would be treated. What's wrong with that argument?

RAGHAVAN: If you go and invest in a country, the country has got the sovereign right to decide whether--on what conditions you can invest. So you are--you have got--if you disobey that condition, you lose. National treatment is provided for. It is not a concern. National treatment doesn't mean--equitable national treatment doesn't mean that you have got superior rights over the local company. National treatment only means that you should not be at a more disadvantageous position than the local company.

[snip] Because it is a case of corporations suing governments. It is not a case of government versus government. It merely raises the ability of corporations to fool around and play with the public money, getting taxpayers to reward them for any failures that they do. That is what has happened in Ecuador case.

In the case of Ecuador, the company, which had an environment dispute and had signed a contract with Ecuador, which contract said that the company, the oil company, could do exploration and benefit from the oil that is extracted, but it could not sell its rights in the company to anybody else without the permission of the Ecuadorian government, and yet the company went and sold part of its rights in the company to another company--. So this was taken up in Ecuador.

And when this was taken up, Ecuador's Supreme Court ordered that this contract has to be canceled, because you [incompr.] obey the terms of the contract. The company concerned sold its interest, which is forbidden in the contract, to somebody else.

And then the Ecuador government is taken to court under the arbitration panel and is asked to pay compensation. How? Because it is--there is one clause in all these agreements that is to say, you must be given fair and equitable treatment.

Now, fair and equitable treatment normally would mean to you and to me as lay persons something very sensible, but it's not. We don't know what, exactly. In the United States, for example, anybody going to a civil court has to follow the procedure--the civil procedure court there is a common court. In India, similarly, there is a civil procedure court. Here we don't know. The panels, we don't know what is a procedure. The hearings are all in private. And so--and there is a conflict of interest which is never disclosed, because the firm today acts for company A; tomorrow it sits on the panel.

Take Peru case similarly. Peru was [incompr.] being [incompr.] or some other company is threatening Peru. Its exploitation of work there created a lot of toxic waste. So it was asked to clear up the toxic waste and clean this site.

It got three extensions, and yet it had not done it. And so the case is now--because the government then stepped in to act on the matter. So what is the case against Peru? That I should get more extensions, so that I can get extensions until perpetuity. You got three extensions, and you didn't even start the cleanup campaign. Because it is a developing country, you think you can do what you like.

JAY: Where did the Venezuela case go, where Chávez refused to accept these decisions?

RAGHAVAN: That is [incompr.] the convention [incompr.] investment settlement disputes, ICSID. It is a panel of panels named from case to case which is run from New York or London or Europe, which is under ICSID convention.

Venezuela has withdrawn from the convention itself. It remains to be seen what is going to happen. Somebody may try to still say how the ruling is binding and trying go and attack the property of Venezuela in some other country, as it has happened recently in the Argentina bondholders case in Ghana. But that would really bring about a certain amount of chaos in international relations.

So it is for the states to step in and say, look, this is now getting totally out of hand.

JAY: So what would you like to see? What type of treaties, what type of international law to govern trade, I mean, what model would make sense to you? In these treaties, if people were to demand changes, what should they be demanding? What would you like to see as the legal framework for this?

RAGHAVAN: First and foremost should be these private lawyers settling this matter among themselves, about ten or 12, is a conflict of interest. General theories of judicial conflicts of interest, judicial open courts, judicial issues being framed that are clearly, before they come to answer to the court, rule of law and natural justice require completely to be framed.

And what exactly? You can't have--it should be fair and equitable treatment. And for me, fair and equitable treatment should mean that I should continue to make profits against your environment problems, against your health, against [incompr.] You cannot have that kind of a right, overriding health and other equitable interests of the local country concerned. That is a real problem.

It has to be a different kind of a convention, open court, like the International Court of Justice, where hearings are open.

So other people do it. People cannot--there are only people--if two governments go before the International Court of Justice, if one of the governments is not represented on the court, it is enabled to have an associate judge, nothing more beyond that. But the judges who are there [incompr.] elected are public, are known. The judges who are elected and serving don't go and also act as lawyers for companies or other countries. They don't go and solicit cases.

Well, these people, this is what they're doing.

JAY: Alright. Very good. Thanks very much for joining us.

RAGHAVAN: Thank you.

JAY: And thank you for joining us on The Real News Network.


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