In 2009, when the government of El Salvador refused to issue an environmental permit to a Canadian mining corporation, community activists in Las Cabañas rejoiced. For years they had been fighting a pitched battle against the efforts of the company, Pacific Rim, to mine for gold in their region – plans that included the dumping of toxic arsenic in their rivers. It was not a campaign without risk. Four Salvadoran anti-mining activists have been assassinated in the course of their courageous efforts.
That victory, however, may well prove to carry a high cost for the people of El Salvador. In a legal assault filed in a World Bank trade court, Pacific Rim is now demanding $315 million in compensation payments from the Salvadoran government, an amount equal to one third of the country’s annual education budget.
That is just one example among many where citizens have fought for and won an important policy victory only to find that victory undermined by corporations using the growing web of international investment rules and arbitration courts. There are many others. Public health campaigners in Uruguay won a huge victory in 2010 when the national government passed new health laws to discourage tobacco consumption. Even though those new laws (including aggressive new warnings on cigarette packages) directly mirrored the guidelines of the World Health Organization, the U.S. corporate tobacco giant Philip Morris retaliated with a $2 billion legal action against the government.
Nowhere is this muscle-flexing by multinational corporations a greater threat than on issues related to sustainable development. The result is a little known but enormous legal obstacle planted directly in the policy path toward a sustainable future. The Democracy Center has just documented that threat in an important new report released this week: Unfair, Unsustainable and Under the Radar: How Corporations Use Global Investment Rules to Undermine a Sustainable Future.
For many this system of corporate-driven investment rules and “dispute resolution” burst into public view a decade ago when Bechtel, the San Francisco-based engineering conglomerate, sued the people of Bolivia for $50 million following the now-famous Cochabamba Water Revolt, after investing just $1 million in the country. A global citizen campaign aimed at the corporation ultimately forced Bechtel to drop that case for a token payment of 30 cents. Yet in the years since, the pile of corporate cases has only grown ever higher.
Another typical current case features dangerous exposure to lead in Peru. When the national government there revoked the operating license for a smelter plant in La Oroyo (operated by Doe Run Peru) in July 2010, the health of the local population and the surrounding environment got some badly needed respite. The village, located high in the Peruvian Andes, has been declared one of the most polluted sites on earth, and in 2007 99% of the children under seven in the neighborhood closest to the town’s smelter had dangerously high levels of lead in their blood. The government deemed that Doe Run Peru’s failure to meet environmental cleanup commitments at the site constituted a breach of the country’s environmental legal standards. However Doe Run’s parent company, the Renco group, has other ideas. The corporation, owned by US billionaire Ira Rennert, has hit back with an $800 million damages claim, enough money to pay the yearly salaries of almost 15,000 Peruvian school teachers (or nearly 6,000 Peruvian health workers).
The world today is covered by an expanding web of over three thousand bilateral and multilateral trade and investment agreements. These agreements grant rights to corporations and allow them to sue governments for policy initiatives that they claim interfere with their profits. The resulting legal cases, despite their far-reaching local consequences, are settled far away and behind closed doors by a small group of unaccountable private lawyers in international dispute arbitration tribunals. Flying in the face of democratic principles and judicial independence, these tribunals operate with little or no public scrutiny and where the communities directly affected are denied a voice.
The number of these investment cases has exploded in recent years, with 2012 breaking all records. By far the most popular tribunal system used by global corporations is the World Banks’ infamous International Center for the Settlement of Investment Disputes (ICISID). Corporations can use this and other tribunal systems to demand hundreds of millions of dollars in compensation from governments – not just for what they have actually invested in a country, but also vast amounts more for the profits they expected to earn into the future. The lawyers at these tribunals move seamlessly from the role of ‘independent’ arbiter to that of corporate attorney. Some have strong ties to multinational corporations and serious questions have been raised about their independence in an unaccountable system in which they have such a huge vested interest. Although previously used as a court of last resort by aggrieved investors, these tribunals have become the weapon of choice for corporations in their attempts to clear the path for profiting at the expense of public health and the environment.
The proliferation of these investor-state cases has three major impacts. First, in cases where the corporations win (as they often do) the result is a massive transfer of scarce public resources to wealthy private corporations. Second, even if governments are successful in mounting a legal defense, doing that comes at a cost of potentially millions of dollars in legal fees paid to one of the handful of high-priced law firms that specialise in such cases. Third, the net impact is a dangerous chilling effect on the willingness of policy makers to implement policies in the public interest for fear of costly international arbitration cases.
The international investment rules/tribunals system has been used to attack anti-nuclear efforts in Germany, public control of water in Argentina and Bolivia, anti-mining efforts across a host of nations, and today has new targets in its sights.
One new likely battleground is citizen and community efforts against oil and gas extraction by hydraulic fracturing or ‘fracking’. The proposed investment chapter of the Canada-EU free trade agreement, if approved, may give corporations the legal fire-power to challenge government regulation of this highly controversial practice. Efforts to curb the dumping of climate-changing carbon into the atmosphere are also at risk. The South Korean government has shelved a plan to introduce a low-carbon incentive system for the auto industry because of fears that the law would breach a provision in the US-South Korea free trade agreement. If the government were to move ahead with the measure it would risk landing itself before theseinternational trade and investment courts.
Today, just as communities in El Salvador and Peru have taken up the battle to protect their natural resources, a whole global movement is emerging to rethink the relationship between economic development and social and environmental well-being, and is pushing governments to take policy action in that urgent direction. This important shift, however, is in direct conflict with the interests of transnational corporations hard-wired to maximize short-term profit and pass on the environmental and social costs of their operations to others. The Democracy Center’s report puts a spotlight on how global corporations are using the investment rules system to undermine the policies essential to sustainable development and the democratic process essential to such policies.
Long an obscure interest of trade and investment lawyers, the system of international investment rules and tribunals has remained off the radar for most of the groups and communities that it affects. This is slowly beginning to change. As the number of controversial cases rises, the injustice of the current system is becoming increasingly clear.
Much as the deregulation of financial markets encouraged by the banking sector helped lead to economic collapse, the system of international investment rules works pushed by multinational corporations is leading us toward environmental collapse. As we hurtle towards a number of ominous tipping points in terms of many of the earth’s natural systems, there has never been a more urgent time for activists, academics, development workers and others to understand the legal and political barriers that block us from changing course. This de facto privatized justice system for big business is a massive such barrier that urgently needs to be brought down.
Thomas Mc Donagh is a project coordinator and researcher with the Democracy Center in Cochabamba, Bolivia.