Get Red Pepper's email newsletter. Enter your email address to receive our latest articles, updates and news.

×

Capital courts: how corporations can hold governments to ransom

Transnational corporations have won shocking powers to sue sovereign states, writes John Hilary, and they are not shy of using them

February 24, 2014
6 min read


John HilaryJohn Hilary is executive director of War on Want.


  share     tweet  

corporate-wall

In May 2011, the German government announced that it would terminate the country’s nuclear power programme in 2022. The decision was in response to the mass protests that burst onto German streets following the Fukushima nuclear plant disaster in Japan, and reflected the deep opposition to nuclear power that has existed within German society for decades. Legislation to phase out nuclear power passed through parliament with an overwhelming majority.

Shortly afterwards, the Swedish energy company Vattenfall announced it was suing the German government for a staggering €3.7 billion in ‘compensation’ for losses arising from the nuclear phase-out. The company had already been successful in a previous suit against the German government over environmental regulations for the River Elbe, which Vattenfall argued made its proposed coal-fired power station there unviable. That case was settled in 2011 with Vattenfall being granted a new permit to construct the power station under less demanding environmental conditions.

At the same time, on the other side of the world, the government of Australia was introducing a new law to combat the social costs of smoking, including the requirement that all cigarettes must be sold in plain packaging from December 2012 onwards. Even before the new measures had come into effect, US tobacco giant Philip Morris announced that it was suing the Australian government for billions in damages and seeking to have the legislation repealed. Philip Morris had also brought a case against the government of Uruguay for measures designed to reduce smoking in that country, where graphic health warnings must now cover 80 per cent of all cigarette packaging. Both countries are fighting the cases on public health grounds.

Unprecedented powersbits-boxThe past 30 years have witnessed a proliferation of investment agreements through which capital can hold social and environmental policy to ransom in even the strongest states. Chief among these are the bilateral investment treaties (BITs) that enshrine the rights of transnational corporations in foreign markets. The first BIT was signed in 1959 between Pakistan and Germany, but it was during the 1990s and 2000s that their numbers increased most dramatically. There are now more than 3,200 international investment agreements in force worldwide, the overwhelming majority of which are BITs.

BITs have established a host of new powers for transnational corporations, such as the right to enter new markets and repatriate profits at will. Most of all, BITs grant foreign companies the right to bypass domestic courts and sue host states before international arbitration tribunals over public policy decisions that might ‘unfairly’ affect their bottom line. This provision for investor-state dispute settlement is unprecedented in that it elevates transnational capital for the first time to a legal status equivalent to that of the nation state.

The arbitration tribunals themselves are no more than kangaroo courts. Arbitrators are not tenured judges with public authority, as in domestic judicial systems, but a small clique of corporate lawyers who are appointed on an ad hoc basis and who have a vested interest in ruling in favour of business. The tribunals sit in secret, and the arbitrators have been found guilty of so many misapplications of the law that even those who support the idea of the tribunals admit they have lost any credibility. A public statement issued in 2010 by more than 50 law professors and other academics called for the system to be abolished and the right to adjudicate returned to domestic courts.

Early warnings

The threat of investor-state dispute settlement first came to public attention with the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the USA. The earliest case was brought in 1997 by US company Ethyl Corporation against the Canadian government, which had introduced a ban on the fuel additive MMT on public health grounds. The government argued that Ethyl had not waited six months from the passing of the legislation before filing its claim, as it was required to do, yet the tribunal ruled that the case should go ahead regardless. The Canadian government settled the claim by paying out $13 million to Ethyl and revoking the ban on MMT.bits-growthSuch precedents opened the floodgates to a mass of other cases brought under individual country BITs. No state has been worse hit than Argentina, which has been targeted by dozens of European and US corporations over the years. One of the most infamous cases concerned the 30-year water concession for Tucumán province, granted in 1995 to the Argentinian subsidiary of French transnational Vivendi. The privatisation led to a doubling of water tariffs almost overnight, but the company failed to maintain the level of investment required under the concession. When the water in Tucumán ‘turned brown’, eight out of ten households stopped paying their bills altogether. Yet an arbitration tribunal still awarded Vivendi $105 million for having its contract terminated.

Even those damages pale into insignificance next to the $1.77 billion (plus interest) awarded to Occidental Petroleum against the government of Ecuador in 2012, the most extensive damages to date. The arbitration tribunal confirmed that the oil giant had broken Ecuadorian law in selling off part of its interests without ministerial approval, but rejected Ecuador’s argument that it was justified in terminating the company’s contract. By contrast, a separate tribunal threw out the claim by Ecuador for $19 billion in damages against Chevron for its contamination of the Amazonian rainforest over a period of two decades.

The backlash begins

The threat to democracy posed by this growth in corporate power has generated its own backlash, with several countries now seeking to abandon investor-state dispute settlement altogether. Bolivia, Ecuador and Venezuela have withdrawn from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), while countries such as Brazil and Mexico refuse to sign up to it. South Africa has unilaterally terminated its BITs with several European countries, while India has put all negotiations on hold while it conducts its own internal policy review.

The UK has not yet suffered a challenge to public policy arising out of its many BITs. Yet under the new Transatlantic Trade and Investment Partnership US corporations will win the right to challenge European states directly before international arbitration tribunals for the first time. Reports suggest they have every intention of doing so. You have been warned.

John Hilary’s recent book The Poverty of Capitalism includes fuller details on BITs and the threat of investor-state dispute settlement

Red Pepper is an independent, non-profit magazine that puts left politics and culture at the heart of its stories. We think publications should embrace the values of a movement that is unafraid to take a stand, radical yet not dogmatic, and focus on amplifying the voices of the people and activists that make up our movement. If you think so too, please support Red Pepper in continuing our work by becoming a subscriber today.
Why not try our new pay as you feel subscription? You decide how much to pay.
Share this article  
  share on facebook     share on twitter  

John HilaryJohn Hilary is executive director of War on Want.


Flooding the cradle of civilisation: A 12,000 year old town in Kurdistan battles for survival
It’s one of the oldest continually inhabited places on earth, but a new dam has put Hasankeyf under threat, write Eliza Egret and Tom Anderson

New model activism: Putting Labour in office and the people in power
Hilary Wainwright examines how the ‘new politics’ needs to be about both winning electoral power and building transformative power

What is ‘free movement plus’?
A new report proposes an approach that can push back against the tide of anti-immigrant sentiment. Luke Cooper explains

The World Transformed: Red Pepper’s pick of the festival
Red Pepper is proud to be part of organising The World Transformed, in Brighton from 23-26 September. Here are our highlights from the programme

Working class theatre: Save Our Steel takes the stage
A new play inspired by Port Talbot’s ‘Save Our Steel’ campaign asks questions about the working class leaders of today. Adam Johannes talks to co-director Rhiannon White about the project, the people and the politics behind it

The dawn of commons politics
As supporters of the new 'commons politics' win office in a variety of European cities, Stacco Troncoso and Ann Marie Utratel chart where this movement came from – and where it may be going

A very social economist
Hilary Wainwright says the ideas of Robin Murray, who died in June, offer a practical alternative to neoliberalism

Art the Arms Fair: making art not war
Amy Corcoran on organising artistic resistance to the weapons dealers’ London showcase

Beware the automated landlord
Tenants of the automated landlord are effectively paying two rents: one in money, the other in information for data harvesting, writes Desiree Fields

Black Journalism Fund – Open Editorial Meeting
3-5pm Saturday 23rd September at The World Transformed in Brighton

Immigration detention: How the government is breaking its own rules
Detention is being used to punish ex-prisoners all over again, writes Annahita Moradi

A better way to regenerate a community
Gilbert Jassey describes a pioneering project that is bringing migrants and local people together to repopulate a village in rural Spain

Fast food workers stand up for themselves and #McStrike – we’re loving it!
McDonald's workers are striking for the first time ever in Britain, reports Michael Calderbank

Two years of broken promises: how the UK has failed refugees
Stefan Schmid investigates the ways Syrian refugees have been treated since the media spotlight faded

West Papua’s silent genocide
The brutal occupation of West Papua is under-reported - but UK and US corporations are profiting from the violence, write Eliza Egret and Tom Anderson

Activate, the new ‘Tory Momentum’, is 100% astroturf
The Conservatives’ effort at a grassroots youth movement is embarrassingly inept, writes Samantha Stevens

Peer-to-peer production and the partner state
Michel Bauwens and Vasilis Kostakis argue that we need to move to a commons-centric society – with a state fit for the digital age

Imagining a future free of oppression
Writer, artist and organiser Ama Josephine Budge says holding on to our imagination of tomorrow helps create a different understanding today

The ‘alt-right’ is an unstable coalition – with one thing holding it together
Mike Isaacson argues that efforts to define the alt-right are in danger of missing its central component: eugenics

Fighting for Peace: the battles that inspired generations of anti-war campaigners
Now the threat of nuclear war looms nearer again, we share the experience of eighty-year-old activist Ernest Rodker, whose work is displayed at The Imperial War Museum. With Jane Shallice and Jenny Nelson he discussed a recent history of the anti-war movement.

Put public purpose at the heart of government
Victoria Chick stresses the need to restore the public good to economic decision-making

Don’t let the world’s biggest arms fair turn 20
Eliza Egret talks to activists involved in almost two decades of protest against London’s DSEI arms show

The new municipalism is part of a proud radical history
Molly Conisbee reflects on the history of citizens taking collective control of local services

With the rise of Corbyn, is there still a place for the Green Party?
Former Green principal speaker Derek Wall says the party may struggle in the battle for votes, but can still be important in the battle of ideas

Fearless Cities: the new urban movements
A wave of new municipalist movements has been experimenting with how to take – and transform – power in cities large and small. Bertie Russell and Oscar Reyes report on the growing success of radical urban politics around the world

A musical fightback against school arts cuts
Elliot Clay on why his new musical turns the spotlight on the damage austerity has done to arts education, through the story of one school band's battle

Neoliberalism: the break-up tour
Sarah Woods and Andrew Simms ask why, given the trail of destruction it has left, we are still dancing to the neoliberal tune

Cat Smith MP: ‘Jeremy Corbyn has authenticity. You can’t fake that’
Cat Smith, shadow minister for voter engagement and youth affairs and one of the original parliamentary backers of Corbyn’s leadership, speaks to Ashish Ghadiali

To stop the BBC interviewing climate deniers, we need to make climate change less boring
To stop cranks like Lord Lawson getting airtime, we need to provoke more interesting debates around climate change than whether it's real or not, writes Leo Barasi

Tory Glastonbury? Money can’t buy you cultural relevance
Adam Peggs on why the left has more fun


246