Home > Uncategorized > Socializing losses, privatising gains: bilateral investment treaties.

Socializing losses, privatising gains: bilateral investment treaties.

The Netherlands are a mayor hub in the network of International Investment Treaties. SOMO, TNI, Both ENDS en Milieudefensie published a new report about these treaties. From the report (emphasis added):

2.5. Undermining development policies

Global corporations are economically powerful. In the case of developing countries, these corporations sometimes have more assets than states …. At the same time there is an accountability gap. The frameworks for social corporate responsibility remain non-binding, while the legal separation that exists between different entities within a multinational enterprise can make it extremely difficult for victims of corporate human rights abuses to achieve any remedy from a parent company, especially where the parent company is domiciled in a different country. Meanwhile, TNCs [Trans National Companies, M.K.] can directly challenge sovereign states through ISDS [Investor-State Dispute Settlements, M.K.]. This creates an enormous power imbalance not only in financial resources, but also in redress to courts between citizens and large corporations.

Investment protection frameworks as enshrined in BITs [Bilateral Investment Treaties, M.K.] and other IIAs [International Investment Agreements, M.K.] further tilt the balance between investor rights and obligations in favour of the investor. Former UN Special Representative on business and human rights, John Ruggie, writes: “Investor protections have expanded with little regard to states’ duties to protect, skewing the balance between the two. Consequently, host states can find it difficult to strengthen domestic social and environmental standards, including those related to human rights, without fear of foreign investor challenge, which can take place under binding international arbitration.”

Investment protection agreements favour foreign investors by giving them access to a parallel and exclusive legal system that is not open to domestic investors, and allowing them to refer to the broadly phrased protections mentioned above that in many instances would fail if brought under the domestic legal systems of the countries concerned.

Investment treaties can also get in the way of development policies as they can restrict “the ability of developing countries to take certain measures which would benefit domestic firms (such as subsidies for infant industries) or give preferential treatment to disadvantaged persons (such as indigenous persons who might require special or differential treatment).” Many IIAs forbid the use of so-called performance requirements – including local content requirements aimed at enhancing employment and the transfer of training and technology – this can be an important tool to enhance the benefits of or address concerns with regard to incoming foreign investment.

2.6. Eroding democracy

Even insiders agree that ISDS undermines democratic decision making. An international arbitrator has summed it up nicely: “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all […] Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.” That many “healthy, vibrant democracies have signed on to investor state dispute settlement” does not change the fact that national legal (democratic) systems are by definition bypassed when international investors – mostly transnational corporations – are enabled to challenge democratic policies for interfering with their profits before ad hoc and non-transparent investment tribunals. In addition, international investment agreements generally do not contain any provisions to exhaust local remedies before reverting to international arbitration.  ISDS enables transnational corporations to bring a case directly against a country. In the eyes of its advocates this adds to the expediency of the system. But critics argue that ISDS gives transnational corporations a powerful tool to challenge a wide range of government regulation and public interest measures. Direct access to investment arbitration allows foreign investors to bypass the domestic legal system and effectively grants them more rights than domestic investors, effectively and unfairly undermining their competitiveness. The ISDS system not only lacks independence, accountability, transparency and coherence in law, it also makes little sense in economic terms as it appears to be inconsistent with the general free market paradigm…

  1. January 29, 2015 at 5:39 pm

    Thank you, I believe erosion of democracy is one of the more important areas of analysis for real economics.

    Please forgive me for changing the subject, slightly. I have been interested by the Oxfam report which attributes ownership of half the worlds wealth to 80 people.

    These first two graphs and text seem to illustrate different results using similar words. Does anyone see my error of reading these?

    Click to access ib-wealth-having-all-wanting-more-190115-en.pdf

  2. January 29, 2015 at 5:40 pm

    Excuse me … First and third graphs.

  3. Marko
    January 29, 2015 at 10:24 pm

    The first graph shows that the top 1% will soon have as much wealth as the other 99% , i.e. 50% of total wealth for each. Let’s assume that was the case today. Total global wealth is ~ $260 trillion , so the 1% would own $130T and the 99% $ 130T.

    The 3rd graph shows that the richest 80 wealth holders ( a tiny fraction of the top 1% ) owns as much as the bottom 50% , each at about $1.8T.

    Thus you can see that the wealth of the 99% is also concentrated – the bottom 50% have $1.8T and the other 49% own $130-1.8= $128.2T.

    • January 30, 2015 at 2:50 am

      Yes, thank you. Two disturbing yet different fifty percents. I am waiting for a figure of total financial wealth relative to what’s available on Earth. It seems to me that a point arrives where frenzied gambling with real assets multiplies to financial complexity worth more than reality and the day is not far off. Still, I’d like to see the figures.

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