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Trading blows


For the people of El Salvador, a $300 million lawsuit would be a devastating setback to national finances. Mario Pleitez under a Creative Commons Licence

Two sets of sharply different international negotiations are currently under way that will have a major influence on global policymaking for decades to come. 

At the United Nations, the Open Working Group tasked with drafting a set of targets and objectives for poverty eradication and sustainable development has recently published its zero draft.

Meanwhile in Brussels and Washington, closed-door negotiations are gathering pace in an effort to finalize two massive regional trade and investment agreements. The Transatlantic Trade and Investment Partnership (TTIP – also known as ‘TAFTA’) between the United States and the EU, and the Trans-Pacific Partnership (TPP) between the US, Canada and 11 other Asian and South American countries are being hailed as the ‘gold-standard’ for future regional trade deals. 

The implications of, and indeed the connection between, these two processes may be lost on your average Northern citizen. But for communities on the front line of conflicts to protect natural resources from short-term corporate profiteering in the global South, they couldn’t be clearer.

Take El Salvador. In recent years, the tiny Central American nation, already suffering from severe groundwater contamination and water shortages, has seen two visions of national development going head to head. On the one hand, in the spirit of sustainability and democracy, communities in the region of Cabañas have mobilized to pressure their government not to allow a proposed cyanide-leach gold mining project that threatens their freshwater sources. On the other, a Canadian mining corporation, backed by some local interest groups, has been hellbent on extracting gold from the mountains.    

The good news for the communities of Cabañas is that their government listened to its citizens and imposed a moratorium on heavy metal mining – a policy reiterated by the recently elected new government. The bad news is that the corporation involved, Pacific Rim, recently taken over by Oceana Gold from Australia, was able to counterattack with a $300 million lawsuit. 

The El Salvador case is just one of hundreds of such ‘investor-state’ cases launched by corporations in recent years. Originally intended as a last resort for foreign investors in cases of expropriation of assets in countries with weak judiciaries, the investor-state dispute settlement (ISDS) system has become the weapon of choice for corporations in conflicts over issues from public health to energy policy to control over public water systems.  

Using obscure investment chapters of trade agreements and bilateral investment treaties corporations can bypass national court systems and sue governments in closed-door arbitration tribunals. 

Lawyers in the tribunals work on a for-profit basis with no accountability to any democratic system, and corporations can sue not only to recover what they have invested in a country when a regulatory change occurs, but also for what they expected to earn in to the future. 

For the people of El Salvador, $300 million would be a devastating setback to national finances.   

And regardless of the final outcome, the government will now spend several million dollars defending the case (fees not refunded to defendants even if they win). In a country where 35 per cent of the population lives below the poverty line, money that could be spent on teachers or doctors will now end up in the pockets of corporate lawyers, mostly from the EU and the US. 

The resulting ‘chilling effect’ on future policymaking – for fear of additional ISDS cases – is arguably one of the most insidious effects of the system.  

The TPP and TTIP trade deals mentioned above are attempting to expand this system on a much broader scale. 

Although the European Commission has been pressured into carrying out a consultation on the investment chapter of the TTIP, the consultation does not provide space for a conversation on the structural flaws inherent in the current investment rules regime, or on alternatives to it.  

And these big regional deals are just the tip of the iceberg.  

The EU and US are signatories to hundreds of other trade and investment agreements that give corporations access to the ISDS system. Despite recognition of the need for future reform by the EU, existing treaties will remain in place for decades to come. 

The zero draft recently published by the UN’s Open Working Group on Sustainable Development Goals addresses some trade issues such as market access and trade-related intellectual property rights for developing countries, but it fails to bring attention to the current investment rules regime.  

Given that both of these negotiating processes will come to a close in the coming months, there has never been a more urgent time to shine a light on the areas of existing international law that stand square in the way of the shift to the more sustainable and inclusive development mapped out in the draft.

In the long run, what will really matter is the impact that each of these two parallel legal frameworks has on people’s lives.

For communities like Las Cabañas in El Salvador, as long as trade and investment agreements continue to grant cast-iron legal rights for corporations and give them access to international arbitration courts to enforce those rights, non-binding targets and objectives for sustainable development will offer scant consolation. 

Thomas Mc Donagh coordinates the Network for Justice in Global Investment project for the Democracy Center in Cochabamba, Bolivia. Follow him: @TmcDIrl

Read 10 reasons to be worried about the trojan treaties.

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