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Why trade tribunals threaten sustainable development

<p>Some say corporate sustainability is thriving, but many company lawyers are quietly using tribunals to take control of the planet&#39;s dwindling resources.</p>

With so many companies and governments pledging to meet the U.N.'s Millennium Development Goals and Sustainable Development Goals, have you ever wondered why progress is practically non-existent?

As a new report shows, it's because the traffic light is permanently colored red, held there by the powerful corporations who control the switch.

Here's how they do it:

• A Swedish energy company sues the German government to the tune of $922 million (€700 million" for "breach of legal obligations" when Germany decides to forego nuclear power in favor of green energy after the Fukushima Daiichi nuclear power plant catastrophe.

• Canadian gold mining company Pacific Rim sues the government of El Salvador in the World Bank's trade court for $315 million for denying a permit to build a mine, despite the fact that the mine would poison the drinking water supply of rural communities for generations.

• The South Korean government decides to delay implementation of a low carbon incentive system in its s auto industry for fear of litigation by U.S. car manufacturers for violating the U.S.-South Korea Free Trade Agreement.

These are all examples of global corporations using the arbitration tribunals of a burgeoning system of often secret international trade-investment agreements -- some 4,000 so far  -- to "resist and attack sustainable development efforts" and human rights, according to "Unfair, Unsustainable And Under The Radar," a new report released by the Democracy Center.

While the above cases are mostly still in litigation, the vast majority of similar suits have the intended result: They subvert democracy in favor of corporate interests, either outright through winning legal judgments worth up to billion of dollars or by intimidating national governments into eliminating or restricting social and environmental policies to avoid corporate legal action.

Their target is most often control of our planet's vital but dwindling resources, such as water, minerals, arable land and fossil fuels, the very last drop of which they aim to wring from the earth.

Gavel image by Africa Studio via Shutterstock.

This "slow-moving coup d'état," in the words of Public Citizen's Lori Wallach, has grown in the last 30 years from a trickle to a flood of cases in trade tribunals around the world, using venues such as the World Bank, even as that august institution issues reports in favor of inclusive green growth policies that "improve social welfare for all, promote careful stewardship of natural resources, and respect the delicate balance of the planet."

It's the very definition of cognitive dissonance.

Thomas McDonagh, author of the report, says this system of privatized justice for corporations originally emerged out of a desire to protect investments in developing countries from arbitrary expropriations, but it has evolved at an incredible pace over the past 30 years into something much more sinister

"As our level of integration of the global economy has increased, these trade and investment deals have exploded and the types of rights they grant to investors has also increased dramatically," he told CSRwire.

"The opportunities for corporations to use international legal mechanisms to gain easier access to natural resources has intensified and so they have begun to use these investment agreements in order to gain easier access to markets and natural resources," he continued. "It has become a weapon in the armory of corporations to undermine citizen organizing and government policy-making to further their own interest."

McDonagh and The Democracy Center got involved in the issue when Bechtel tried to privatize the water system of Cochabamba, Bolivia. When the public erupted in massive protests against this attempt to restrict access to a vital resource, the Bolivian government canceled the contract. Bechtel used the trade-investment dispute system to sue the Bolivian government for $50 million, even though it had invested only $1 million into the project.

"The system allows corporations to sue not only to recover costs already incurred but also expected future revenues," McDonagh said. "Egregious claims under the investment rules system are at the center of the conflicts over natural resources."

Claiming compensation for "indirect appropriation," as this gambit is called, is just one of the rules the trade investment dispute system has evolved to allow corporations to trump states' rights. Others include the right to bypass domestic courts, the right for favored nation status and other mechanisms to privilege global corporations over local businesses and the right to avoid controls on capital flows.

Supporting and abetting this complex net in which sustainable development efforts are ensnared is a growing army of corporate lawyers unaccountable to any democratic process and highly invested in perpetuating the system -- so much so that they are pushing corporations to take legal action against governments in investment disputes, McDonagh says.

"There has been an investor-state dispute boom over the past two decades, promoting new cases and investor-friendly rulings, and lobbying against reform," McDonagh said. "We also argued that the current investment arbitration regime is neither fair nor independent, but biased towards the interests of investors."

And Wall Street has got its piece of the action: a derivatives market where investors fund the litigation in return for a piece of the compensation awarded. (What will they think of next? A derivatives market in life insurance? They already have.)

As McDonagh's report makes clear, when millions or billions are taken out of national treasuries to pay the damages awarded by these corporate-friendly courts, those funds are no longer available for teachers, health systems or domestic green development.

One major problem is that sustainable development has a lot of lovely recommendations and guidelines behind it, but no accountability and enforcement. The U.N. Guiding Principles on Business and Human Rights are voluntary. Participation in the GRI is voluntary.

"What we've observed is a complete separation between the rights given corporations and the enforcement mechanisms that come with them on the one hand and the responsibility of corporations and the ability of governments to hold them to account," McDonagh said.

"So this leads to asymmetry, where a government policy, such as a public health policy or a policy to restrict gold mining or protect drinking water, results in governments being sued for hundreds of millions of dollars in arbitration court, whereas, on the other hand, when corporations are involved in human rights abuses or the operations of the corporation are causing environmental destruction, no mechanism exists for holding corporations responsible for their actions," he continued. "Although the U.N. guidelines and recommendations are welcome, they remain guidelines and recommendations."

We need a radical change of frame, McDonagh said.

"We really need to question the idea that corporations should have legally enforceable rights that preempt the laws of governments. Human rights should come before the rights of corporations," McDonagh said.

One key reform is to establish alternative investment rules that put human rights first.  Among other measures, these could encompass the following, according to the report:

• Fair dispute resolution that includes local and regional courts;
• Binding obligations (not "guidelines") that hold corporations accountable;
• Providing a space for sustainable economic development policies by eliminating provisions that favor foreign global corporations, like most favored nation status and capital controls.

A good first step is for governments to refuse to enter into trade agreements that favor corporate interests over national policy, such as Australia has pledged.

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