Corporation vs. Nation: The Ultimate Showdown

No Trial, No Judge, No Jury

A secluded private courthouse in Washington DC is currently the scene of a gargantuan legal battle that could have serious ramifications for all of us. Yet virtually nobody knows about it.

On one side of the battle is the tiny, poverty-crippled Central American nation of El Salvador; on the other is Pacific Rim, a Canadian mining company that was acquired by the Australian corporation Oceana Gold in 2013. At stake is the basic issue of who owns what in tomorrow’s world.

Putting Gold Before Water

In 2009, Pacific Rim filed a private lawsuit – what is referred to in the impenetrable jargon of modern globalism as an Investor-State Dispute Settlement (ISDS) – against the government of El Salvador for $301 million, equivalent to just over 2% of the country’s $24 billion GDP. As BBC Worldreports (in Spanish), the amount is equivalent to three years’ combined public spending on health, education and security.

The company argues that El Salvador unfairly denied its mining permit after it began an exploration process for gold mining, costing it hundreds of millions of dollars of “potential future profits.”

ISDS was originally intended to insulate investors from the costly consequences of expropriation, but it is now increasingly being used by companies to claim future profits foregone as a result of government legislation aimed at protecting the public, as well as to intimidate governments into changing or abandoning such legislation.

In the case of El Salvador, the government changed its mining legislation in order to safeguard the nation’s water supply. As Ciara Nugent writes in theArgentina Independent, a startling 97% of its water is currently unsuitable for human consumption, primarily as a result of the mining activities of companies like Pacific Rim. The miner’s proposed new project, due to take place in the northern San Isidro de Cabañas region, would have implied risks of contamination to the little water that remains:

In 2008 public outrage over the pollution of the San Sebastián river – which was left with a distinctive orange color after almost a decade of unchecked gold mining projects nearby – prompted then-president Antonio Saca to declare a temporary ban on issuing new mining permits.

It was a decision backed by public support: according to a survey published in July by the Central American University (UCA), just under 80% of Salvadorans continue to oppose mining in their country.

As Nugent notes, the threats to water access, the negative effects of mining activity on the environment and the will of the Salvadoran public, have no relevance in the arbitration panel’s deliberation. Instead, El Salvador’s case must rest on the government’s allegations that Pacific Rim had failed to deliver the required environmental tests and administrative steps of land acquisition to continue mining on its territory — something even the company itself now admits, the BBC reports.

According to Luis Parada, a coordinator of a team of lawyers defending El Salvador, “what is ultimately at stake is whether an overseas company can use the international arbitration system to force a sovereign state to change its laws. Or whether it’s the overseas investor who must comply with the laws of the country in which he has decided to invest.”

No Trial, No Judge, No Jury

Pacific Rim’s case against El Salvador is not being heard in a court of law, under the scrutiny of a judge and jury, but rather in front of an arbitration panel made up of three professional arbitrators — one representing the company, one representing the country and the other chosen by the first two to sit as president of the panel. None of these arbitrators are trained judges; they are private individuals representing international corporate law firms. The system has been called “kangaroo court.” Yet it is they who will ultimately decide El Salvador’s fate.

Supporters of ISDS consider this an objective system, since the host nation and investor may each choose one arbitrator, while the third must be a joint decision by both parties. However, for Hector Berrios, an anti-mining activist and coordinator of Movimiento Unificado Francisco Sanchez-1932 (MUFRAS-32), the size and shape of the jury is a key indicator of the unfairness of the system.

“One of the judges is from England, another from France and the third from Argentina,” Berrios,” told The Argentina Independent. “I think it’s unfair that people who know nothing about our struggles and way of life should decide on something that affects the human rights of the Salvadoran people. Especially when their decision is based purely on [administrative] concerns.”

As David Malone, the author of Debt Generation, explained in a recent talk on bilateral and multilateral trade agreements, the secrecy of the arbitration process is “mind-blowing.” No citizen of any affected country can demand leverage or accountability over the proceedings. The arbitrators meet behind closed doors and do not even need to inform the people of a country that their government has been taken to arbitration.

Worse still, investment arbitrators are hardly neutral guardians. To a far greater degree than judges, they have a financial and professional stake in the system. They earn handsome rewards for their services. As Corporate Europe Observatory observes, arbitrators’ fees can range from $375 to $700 per hour depending on where the arbitration takes place:

How much an arbitrator earns per case will depend on the case’s length and complexity, but for a $100 million dispute, arbitrators could earn on average up to $350,000. It can be far more. The presiding arbitrator in the case between Chevron and Texaco v. Ecuador received $939,000.

Potent Portent of Things To Come

There are many deeply worrying aspects of the international investment arbitration system (for more dirt on ISDS, click here). By far the worst aspect of ISDS – which allows companies to sue nations, but not nations to sue companies – is its unapologetic pro-corporate bias.

Corporations have long been powerful economic and political entities, but in recent decades some have grown to dwarf even middling-sized national economies. According to a ranking published by Global Trends, 58% of the world’s biggest 150 economic entities in 2012 were corporations. They include oil, natural gas, and mining majors, banks and insurance firms, telecommunications giants, supermarket behemoths, car manufacturers, and pharmaceutical companies.

Small countries like El Salvador are virtually defenseless against these gargantuan organizations with their armies of lobbyists, trade representatives and corporate lawyers. But its government is at least trying, which is a lot more than can be said for most. In the wake of Oceana Gold’s lawsuit it has changed its investment law, deleting any reference to international arbitration over disputes with overseas investors. In a similar vein the elected governments of Uruguay and Paraguay recently decided to abandon talks on the Trade in Services Act (TiSA), which also includes a hidden ISDS clause.

But escaping the system will be no easy task. ISDS is a vital part of virtually all modern trade agreements, whether bilateral or multilateral. They include the United States’ strategic ‘trade’ treaty triumvirate comprising the Transatlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Parnership (TPP), and TiSA, all of which are in the later stages of negotiation.

It’s not only Western governments that are in on the act. The Australian government recently came under fire for the inclusion of an unfairly balanced ISDS clause in its new trade agreement with China, a country that in its recent trade treaties has actually expanded the scope of ISDS provisions.

As Parada tells the BBC, Oceana Gold’s suit against El Salvador is vital for all countries because it shows that what is on the line is “their basic essence as sovereign nations that are capable of watching over the health and wellbeing of their inhabitants.” El Salvador’s desperate battle to defend its right to protect the quality of the water its people drink is a potent portent of what is to come under the current onslaught of global trade legislation.

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