Trade deals’ investor-state provisions: A sub-criminal conspiracy?

There is a glaring disconnect in the world between economic growth, and trade and investment agreements.

At the same time that Canada and other countries are pushing hard for huge multi-national deals — the TPP, CETA and the U.S.-EU deal, the TTIP — all the evidence suggests that global trade is on a long-term downward trend. Nothing in the near or middle term future suggests that it will recover to anything like its China-driven peak.

Financial Times analyst Martin Wolf recently argued bluntly that globalization no longer drives the world economy.

He points out that “…ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016…”

In addition, says Wolf, “The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling to 36 per cent by 2015.” Foreign direct investment has also declined.

So if global trade isn’t going to pull the world economy out of its persistent doldrums, why are countries putting so much political energy into signing these agreements? They do little or nothing to enhance growth in global trade — trade is driven by global demand — also flat. Amongst the countries primed to sign these agreements trade is already virtually tariff free.

Even the government’s Global Affairs department’s recent analysis estimates the Pacific Rim deal, the TPP, would increase GDP by a minuscule .127 per cent ($4.3 billion in a $2 trillion economy) — but not until 2040! In short, we will gain virtually nothing.

If these deals don’t enhance trade or growth what do they do? Investment agreements like CETA, TTIP and the TPP are all aimed at making international investment by multinationals as risk free as possible. Corporations always try to externalize costs — but these deals and their ISDS clauses allow then to externalize risk — and it’s taxpayers who take the risk.

In a global economy that has virtually no prospect of recovering in the foreseeable future, one road to continued profitability lies in treaties that protect a company’s “projected future profits” against any government action in the public interest.

But it gets far worse. Over the past 10 years ISDS provisions in literally thousands of agreements have become tools for criminals, greedy law firms, and “investors” in ISDS cases.

In an excellent four-part series, Pulitzer Prize-winning investigative journalist Chris Hamby reveals that: “Companies and executives accused or even convicted of crimes have escaped punishment by turning to this special forum.”

Hamby cites several cases: “… an Egyptian court had declared a foreign company’s purchase of a factory corrupt and nullified the deal, court records show. But after the company filed an ISDS claim, the government agreed to pay $54 million in a settlement…”

In another, two financiers had been convicted of embezzling $300 million from an Indonesian bank but used an ISDS finding to force Interpol to back off, protect their investment, and “…effectively nullify their punishment.”

Hamby found more than 35 cases where “…the company or executive seeking protection in ISDS was accused of criminal activity, including money laundering, embezzlement, stock manipulation, bribery, war profiteering, and fraud.” One ISDS lawyer admitted privately: “You have a lot of scuzzy sort-of thieves for whom this is a way to hit the jackpot.”

If it’s it not criminals escaping justice, it’s corporations gaming the system, perverting it so that the profit comes not from a planned or existing investment but from the increasingly enormous settlements demanded of governments if they win an ISDS arbitration.

A Canadian example is the U.S. quarry company, Bilcon, whose application to build a quarry in Nova Scotia was rejected by federal and provincial environmental review panels. It sued and a NAFTA arbitration panel ruled in its favour. Bilcon is seeking $300 million (an appeal is pending) for lost future profits — many times the potential profit on an actual investment that it will never make.

But it goes beyond just large companies seeking out-sized awards.

Lawyers taking these cases can make millions on a single case. The fat rewards has led to ISDS lawyers creating ISDS business by linking companies with potential cases, but limited resources (cases can cost as much as $8 million to litigate), to investors willing to finance the case for a big cut of any award.

Burford, a U.S. financier increased its profits nine fold in 2011 as a result; Juridica, its British competitor, managed an increase of 578 per cent, based on ISDS business. A 400 per cent return on investment is typical.

Selvyn Seidel, a New York attorney heads up a firm exclusively devoted to promoting ISDS cases. He told Hamby: “Some lawyers monitor governments around the world in search of proposed laws and regulations that might spark objections from foreign companies.”

Then they identify potential client companies and offer to head up a challenge. Litigation lawyers handling ISDS cases for corporate clients also regularly end up on arbitration panels where it is in their interest to find for the complainant — to encourage other companies to try their hand at an ISDS windfall. This glaring conflict of interest has prevailed for over 20 years.

This sleazy perversion of the ISDS provisions (originally intended to stop rogue governments from actually seizing assets) is blithely ignored by the Canadian government, by provincial premiers, mainstream economists, business writers, legal scholars, and just about anyone else with any influence over public policy.

It is, quite frankly, a disgusting abrogation of responsibility in all these quarters. Whether it is rooted in sheer laziness, willful ignorance, deliberate obfuscation, opportunism or intellectual dishonesty hardly matters, the results are the same: our government is determined to sign agreements that will expose public policy making to aggressive assaults by the most powerful corporations on the planet.

This sorry state of affairs is in stark contrast with Europe where there is growing public opposition to ISDS provisions in CETA and the TTIP — and extensive, detailed media coverage of the debate.

Government ministers in Germany and France have denounced ISDS and basically declared CETA and TTIP dead in the water because of it. Australia in 2011 stopped signing agreements with ISDS clauses in bilateral deals, and many other nations — such as South Africa, Indonesia, Brazil and India — have done the same or are planning to.

But Canada? No, we continue to be eager patsies, willing victims of corporate greed and blasé about our sovereignty and our democracy.

 

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