How Corporate Sovereignty Threatens Democracy
from the at-most dept
As people have begun to learn about corporate sovereignty through plans to include it in TAFTA/TTIP, the European Commission has been trying to scotch the idea that it might allow corporations to dictate policies to nations. Here, for example, is a comment in the Commission’s main TTIP FAQ, which tries to answer the question “Why is the EU including Investor to State Dispute Settlement in the TTIP?“:
Including measures to protect investors does not prevent governments from passing laws, nor does it lead to laws being repealed. At most, it can lead to compensation being paid.
Those are all true statements in theory, but that’s probably not much comfort to Romania, which has been discovering the harsh reality in the long-running discussions over whether to allow a Canadian company to create a huge open-cast gold and silver mine in the country. Here’s what happened last year:
Gabriel Resources Ltd. (GBU), backed by billionaire hedge-fund manager John Paulson, threatened to seek as much as $4 billion of damages should Romanian lawmakers vote to oppose its gold mine project in the country.
“We have a very, very robust case, and we believe we have claims up to $4 billion that we can send to the Romanian state,” Gabriel Resources Chief Executive Officer Jonathan Henry said today in a telephone interview. “We will go ahead and do that if the vote is against.”
As the European Commission notes, the existence of a bilateral investment treaty with Canada that includes a dispute settlement mechanism did not, in itself, stop the Romanian politicians from blocking the gold mine project in the parliamentary vote, which took place in December 2013. So everything’s fine, right? Democracy prevailed, and the people were heard. After all, “at most”, as the FAQ helpfully reminds us, Romania will have to pay $4 billion damages at some point.
Except that, for a country with a GDP of less than $200 billion in 2013, this represents 2% of the country’s entire economic production. That seems an incredibly high price to pay for the exercise of basic democracy. The danger is that faced with the threat of such enormous fines, other parliaments will lack the courage shown by Romanian’s politicians, and choose to ignore the will of their people by meekly acquiescing to corporate demands.
Does GBU deserve some compensation if a project is cancelled by the local government because of widespread public concerns about its safety? Perhaps — although business always involves some risk, and foreign investment is no different. If a company is really worried about that aspect, it can take out insurance — from the World Bank, for example. Does GBU deserve to be awarded 2% of a country’s GDP, paid for by the citizens of a land struggling to raise its living standards? That hardly seems fair. And yet it’s precisely what ISDS could allow, because the arbitration panel that decides such corporate sovereignty cases is unconstrained in what it can award, and not at all concerned with what the knock-on effects might be.
But the politicians making up the European Commission should be, since they are supposed to represent the 500 million European citizens that pay their salaries. The fact that they are pushing as hard as they can for ISDS in TAFTA/TTIP shows which side they are really on, and that they are quite happy to put corporations before nations, and profits before people.
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Filed Under: canada, corporate sovereignty, democracy, romania, tafta, tpp, trade agreements, ttip
Companies: gabriel resources ltd., gbu
Comments on “How Corporate Sovereignty Threatens Democracy”
Question: In what sane universe does the idea of a business being able to sue someone to make the environment more business friendly make sense?
Isn’t that kind of the point of being an entrepreneur; that you aren’t in a cookie cutter job with no risk, and by taking those risks you get more out of life than burger flipping?
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That would be the one where those large businesses make sizable ‘donations’ to the people pushing corporate sovereignty in ‘trade agreements’. When you’re getting paid that much, all sorts of otherwise crazy or corrupt stuff starts to make ‘sense’.
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When you have that much money, you get pretty used to everyone doing what you say and start to expect to have some say in how the world works.
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@ not anon:
well, there’s your first mistake: you’re looking for a sane universe, i think that is about 100,000 multiverses down the line…
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International rules help with investment. No company wants to invest billions only to have local governments change the rules. As you state, there are two ways to deal with this:
1) Have no rules. Then companies would not likely invest in any country unless the risk premium is high. This is why credit card rates are HIGHER for poor people.
2) Have rules. Then companies would feel comfortable investing in riskier countries without haven’t backbreaking terms.
Corporation do not care which system you want. But it is idiotic to think they are just going to roll over when countries try and change the rules mid-game. Don’t like the international rules? Then don’t sign onto treaties.
they showed whose side they were on, particularly de Gucht, when they did as much as they could to get ACTA implemented in the EU. he in particular, but ably abetted by the rest of the Commission, are not interested in what is best for the EU or its peoples in the slightest!! the whole lot of them need sacking and suing for what NOT doing what the job is supposed to do!!
Quick point of clarification. Is anything very terrible actually going to happen if the Romanian government just refuses to pay up? It might hurt their credit rating, but unless this Gabriel Resources outfit somehow persuade the Canadian government to invade Romania (and I don’t think even the Canadian Tories are that ‘pro-business’) I don’t really see a way of enforcing the suit.
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Good question.
My first thought was it could make any future ‘trade deals’/negotiations difficult, if they get a reputation of refusing to honor the terms in them(the US apparently does so all the time, but few countries are willing to stand up to the US sadly), but considering it’s a ‘trade deal’ that got them into this in the first place…
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They’re not America, so yes.
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Is anything very terrible actually going to happen if the Romanian government just refuses to pay up? It might hurt their credit rating, but unless this Gabriel Resources outfit somehow persuade the Canadian government to invade Romania (and I don’t think even the Canadian Tories are that ‘pro-business’) I don’t really see a way of enforcing the suit.
There are lots of other ways to enforce this. If Romania doesn’t pay up, then they can start to issue painful trade sanctions against the country via the WTO. That could include anything from terrible tarriffs to import/export restrictions that effectively starve Romania of revenue until the amount is “paid off.”
Often this is done in totally unrelated businesses to get people angry enough to just pay up the bill. So… Romania is a big exporter of machinery and equipment, and you could see other countries putting a big tariff on that, in order to get Romanian manufacturers to protest to their government.
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Ah, so extortion. Ends and means and all those justifiable things.
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Yeah, the same way that if you don’t pay a speeding ticket, they take your drivers license away is “extortion”.
If Romania doesn’t like these rules, they shouldn’t sign international treaties.
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At which point the same sanctions will be imposed to not extort future agreements.
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No, because in the speeding ticket situation, there is a possible positive outcome. I can choose not to speed and, hence, not get a ticket.
If Romania chooses not to play ball with the trade agreement, they miss out on the revenue from free trade. If they do play ball, they risk getting sued for 2% of their GDP. Lose-lose situation.
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A cogent point. Though given just how much flak the very concept of corporate sovereignty is getting at the moment, I’d be surprised if they couldn’t find a number of countries who were unwilling to go along with the WTO on this.
taxes
Any country is allowed to tax different businesses more or less as they see fit, maybe they should allow this business of open mining go ahead just let them know that the country is not going to give away their valuable resource for anything less than 90% of the money made. If the business wants to use this as a tax write-off elsewhere, then they need to understand that they will be charged a tax on every ounce of silver they mine even if it is more than what the silver is worth.Also they would need to pay 5 billion deposit for the cleaning up f the mess they make 5 billion that can be used to resettle the land they dig up.
There are many ways this type of threat by big business can end up being very profitable for a country, especially if they start including in every contract or investigative contract any mining company produce the rights to stop everything at no cost to the country and taxpayers.
Re: taxes
Everything you said would trigger more ISDS disputes for unfairness or discrimination.
Corporations should be mindful...
…of what game they’re choosing to play. Most of the time, nations settle disputes with each other via negotiation. But once in a while that doesn’t work, and at that point the negotiating instruments become kinetic. I do hope that Jonathan Henry and his fellow thugs at Gabriel Resources are aware that if they choose to act like a nation, then they may well be treated like one.
Re: Corporations should be mindful...
However, many — perhaps even most — of the really large corporations also have their own armies or effectively own nations with militaries.
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So history repeats itself. http://en.wikipedia.org/wiki/East_India_Company
Notice anything funny about the flag?
Here in the states, corporations are [already] people too, my friend!
And time for some irreverent snark: maybe if Apple wanted to lobby for these provisions they might call them ‘iSDS’
implying the US has ever been a democracy…
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US has, never, ever been, or was ever intended to be a democracy.
We are a Republic! We have some democratic underpinnings but we are NOT nor should we EVER be a Democracy.
In a democracy… you can & will have 2 wolves and 1 sheep voting on what(more like WHO) is going to be served up for dinner.
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“… you can & will have 2 wolves and 1 sheep voting on what(more like WHO) is going to be served up for dinner.”
And this is not the case in our beloved Republic?
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well, in case of the US the analogy would be more appropriate in the following way:
You have two sheep clothed as wolves who take turns in deciding which sheep of the herd to feed to the real wolves who essentially own the two sheep masking as wolves.
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Yes and no.
The underlying concept is called democracy – that is, that political power rests in the people and is fairly evenly split among them (as opposed to divine right/mandate, say).
But what we don’t have is a direct democracy. We’ve got a representational one, where we the citizens select a smaller set of proxies to wield our (conceptual) power on our behalf.
In addition, strictures upon how governmental powers are wielded are fully in-line with democracy – “you may not eat your fellow citizens for dinner” (either at all or “unless you can satisfy extra requirements – ie, a constitutional amendment) is quite legit under any kind of democracy short of direct unstructured democracy.
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“Investor to State Dispute Settlement”
This seems to be a misnomer. Investors have little to no input in what corporations do. Decisions are made by the good ol boys that serve on each others boards. So, it should be called Douche Bag Demands of State Puppets.
Why is it Investor to State? Sounds like a one way street. And why is it called a settlement when there is nothing to settle.
Oh – and they call it a dispute. How cute is that?
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how about calling it what it really is?
LCBSC – Legalized Corporate Blackmail of Sovereign Countries.
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The “investors” in this term are not the people who invest money in the corporations involved, but the corporations which invest money in the state(s).
Theoretically investments in the states could be made by individuals, but in practice pretty much the only individuals who have the money to be able to afford to make such investments on a meaningful scale are also incorporated, and would make the investments through their corporation(s) in order to limit their own liability in the event of a failure.
Glyn,
This is bad. It exists in America already and it has been a mess for them.
Fifth amendment “taking clause”, which was initially about the Government compensating for taking land has been twisted into “taking anything via regulation or whatever”.
So even a Health and Safety regulation is judged to “take profits” from a company. The Government will be made to pay compensation. Inevitably passing any public regulation will be impossible to do. (common sense gun laws for a decent American example)
Democracy: government by the people. Having Corporations dictate policy is not democracy. It’s a corporate dictatorship.
This is bad. How on earth can European members look at America for what works. Clearly the American model is corrupted completely.
Re: This is bad.
I’m not so sure this is bad.
Every rule & regulation creates winners and losers.
We want the legislature to pass laws that create net positive effects – the benefits should be larger than the costs.
Some laws spread costs and benefits pretty evenly – no compensation is needed for those. But others concentrate costs on a few, for the benefit of the public at large. In those cases compensation for the losers seems only fair.
If you can’t afford to pay the compensation, that’s a sign that you’ve got a bad law – the benefits are supposed to be bigger than the costs.
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… err… I don’t think you’ve thought that last statement through. Who determines the compensation, and who determines what triggers a ‘legitimate’ demand?
A corporation decides both (more or less), and it’s ruled on by a theoretically completely neutral arbitrator. Unfortunately, the arbitrator is almost always not completely neutral, giving the corporation a bit of an edge.
And so you’ve got what’s described in the article – the threat to try this process. Heck, just like SLAPP, “you can beat the rap, but you can’t beat the ride” – the process itself is going to be inconvenient.
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A court of law.
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Wrong its “arbitration” not a court of law.
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What do gun laws have to do with anything, other than the fact that you want more of them?
not sure why the uk is even thinking about it. we already have free trade agreements with the eu and usa. if anything we should be trying to stop it happening
Too big to fail, and if foreign investors don’t get what they want, the countries taxpayers bail the company out. Just like they bailed all the Banksters out in 2008.
This causes a government debt that needs to be paid off. Social welfare services get cut. Austerity kicks in. Citizens who had nothing to do with the ISDS lawsuit, are on the hook for imaginary lost revenue.
Standard of living goes down. People get pissed. Protests start to break out. Welcome to the future, or more accurately, the present.
Less government
The solution to this is, of course, less government. Corporations are only allowed to sue governments because those governments entered into binding agreements. With weaker government, corporations would have to be much nicer, because there is no international “stick” they could use to beat those who don’t agree. The only deterrent would be the same as with all unregulated systems: reputation. Countries that don’t honor deals would not get investment.
Unfortunately, I get the feeling most people think the solution is more government.
Re: Less government
Yes, Enron said exactly the same thing…
One possible consequence that isn’t talked about is, I think, the danger of countries avoiding the risk by *never entering into contracts with large corporations* if they can possibly help it.
After all, without any kind of agreement with Gabriel, there’s no hook for the company to try this kind of extortion.
Corporations lose from such a trend too, I would think.
But ultimately, I’m adamant against this kind of formalized process that often boils down to extortion. The penalty for a country dicking a company over… is lessened future investment by other companies; it’s a self-correcting mechanism.
And the judge of whether a country screwed over a corporation would be all the *other* corporations, often competitors to the first. And, in theory, self-interest wins out for a relatively impartial decision, since these potential future investors would be putting money where their mouths are.
But an arbitration panel, even if it were completely competent and impartial, doesn’t have the capitalistic advantage of self-interest working to reinforce the structure.
Plus I dislike any kind of relinquishment of governmental power to private hands. The *restriction* of how a government can use governmental power is fine to me – but effectively transferring some of that power to an entity not obligated – even in theory – to represent the interests of me and my fellow citizens is a horrible *horrible* idea.
(The power a government wields will always exist in a society more advanced than a small tribe. I prefer it remain in handcuffed hands that I have a say in the identity of than in unrestrained hands I have no say in the identity of)
Romania can prevail by using the USA model of control. Send in the EPA for weekly inspections and fines, shutting down production when “necessary”. Followed by OSHA weekly inspections and fines, shutting down production when “necessary”. Followed by the IRS taxing production at 75% of the metal produces…whatever is left can be the company’s profit.
Romania is having a problem because they are trying to be honest and above board.
As soon as the geopolitical, environmental, social and financial catastrophes climate change is going to impose on people everywhere start being felt, the idea of corporate sovereignty will be relegated to the same dustbin as the idea of the divine right of kings.
Until then, if the EU were serious about maintaing democracy, ‘damages’ would be adjusted according to the gdp of the nation being sued.
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I believe this is best called the divine right of corporations
Early Retirement Plan for Politicians
Well, I can see politicians scrambling to get on this wagon as fast as their furry little legs will carry them. After all, considering the size of the settlements available when suing a country, the graft chunks and payoffs for willing minions, shills and henchmen should be astronomical in size as well.
Its such a lucrative con, that a politician could get his 120′ yacht, summer home in Yosemite, and his Lear Jet all in one single operation and retire before he turns 50!
Looks to me like this is gonna be the wave of the near future.
As far as the effect on the public is concerned – many, many politicians and lawyers and other crooks will be able to reach the top of the capital food chain long before the public becomes aware of the cause and tries to stop it.
In other words, its a perfect five/ten year business plan.