Corporation vs. Nation: The Ultimate Showdown

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No Trial, No Judge, No Jury

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

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 World reports (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 the Argentina 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. By Don Quijones, Raging Bull-Shit.

A historic decision has been met by a wall of media silence. Read… Uruguay Does Unthinkable, Rejects Global Corporatocracy

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  18 comments for “Corporation vs. Nation: The Ultimate Showdown

  1. lG
    October 3, 2015 at 8:08 pm

    I’ve lived in the US for 30 years. That’s three generation’s ago.
    I grew up in socialism. Thus I left.
    The kids here are ready for socialism!
    So be it. I’ll just move again.

    • Ben
      October 3, 2015 at 9:28 pm

      Wasn’t the reason you hated socialism that governments could make arbitrary decisions and then distribute favours & your money to whoever they chose? Well that’s exactly what ISDS allows only the money is flowing the other way from the people to corporations. How will you feel in the future when some big Chinese or Russian SOE takes your state to a tribunal behind closed doors, wins, and your state had to pay them using your tax dollars that were meant for local roads, schools etc?
      I’m all for corporations, I work for one, their shares have made me money etc but allowing them to pursue countries for this sort of thing is plain wrong. Capitalism without risk will not work, the system will become distorted and eventually implode. Though there should be some safe guards to investors in cases where political driven decisions like nationalising an industry leads to corporate losses.

      • Peter forsyth
        October 4, 2015 at 5:25 am

        We are here already by the back door. Banks? Bail Outs and QE? Bail Ins on the horizon for the EU and no questions asked cash for the war machine.

      • Alejandro
        October 4, 2015 at 9:10 am

        Aren’t “tax dollars that are meant for local roads, schools etc.”, “political driven decisions”? Don’t “corporate losses” fall in the category of “risk”? Isn’t “safe guards to investors” another way of saying “risk-free” investment…and isn’t this what really distorts?

        Capitalism without regulation has not worked…monetary policy without effective fiscal policy hasn’t worked either, for the overwhelming majority.

        • ucde
          October 4, 2015 at 1:42 pm

          the truth! spot on!

  2. Northern Star
    October 4, 2015 at 10:00 am

    This imaginary future profits is my favorite thing in all of this. Why the hell would someone need to pay future profits, if some corrupt government have agreed in something dumb, new government should be able to change rules in democracy, but it aint the thing no more, cause democracy seems to be long gone and theres no power for the people left, only power for corporations and the elite. at least all corrupted Russian government is big enough to make EU corporations to walk in their leash. They ain’t give a damn about agreements. That ain’t good either, but you got to have some balance here. Just forced one finnish power corporation to agree in their nuclear power plan in Finland or otherwise they would have made their business in Russia a living hell. I’m talking about Fortum and Rosatom here…

    We have socialist system mixed with capitalism here in Nordic and most of us ain’t crying about it and I ain’t moving because of it. Socialism is some old bogeyman, which ain’t what it use to be, cause we know that markets left alone ain’t gonna work, cause we ain’t have true capitalism nowhere. There just needs to be balance between socialism and capitalism or other party ain’t be willing to give their full potential and there will be social unrest and rest of it, which will slow down evolution.

    • Red Flag
      October 5, 2015 at 8:37 pm

      Yeah, why would any government in El Salvador’s position not just depose the leader who made the agreement and then declare a new county constitution preventing that action by any entity, global corp or not. Then don’t let the plans land. Have the airports and entries guarded and don’t let them in to enforce any takeovers. Oh, and just for safety, call Vladimir Putin and get his opinion and then have further talks, which are announced to the press. Get China involved too…..that’ll clear the Mr. Globalist out.

      of course, the leadership in El Salvador may be in on the extortion….in which case, maybe a local mafia or cartel party could clean up that local graft.

      • Red Flag
        October 5, 2015 at 8:38 pm

        PS, if I were the El Salvador leaders, I’d pull a no show and call Putin and Xi ASAP. Make some new friends.

  3. lg
    October 4, 2015 at 10:20 am

    I’m self employed have my own business . And plan to keep it that way till I die!
    To me “Capitalism” means freedom!
    I can work when I want to I can regulate my business as I want to. I can go on vacation when I want to!
    The US government is starting to take away to much from that freedom. It is starting to look like a socialist government.
    Killing small business, subsidizing large corporations, bailing out banks with tax payer money is Socialism as well! Welcome to the

    • October 4, 2015 at 12:04 pm

      We are witnessing the rise of a corporate rule of law that trumps national sovereignty and individual rights. We have been sold down the river by our own elected representatives. This is not socialism, this is fascism, pure and simple.

    • rich black
      October 4, 2015 at 1:34 pm

      What we have in the US of A is neither capitalism nor socialism. When corporations control the government, it’s not socialism. It’s fascism. With fascism, tax revenue is privatized, and corporate losses are socialized.

    • Peter forsyth
      October 4, 2015 at 4:04 pm

      TTIP and TPP will change crony capitalism into the biggest transfer of cash into the pockets of the rich you could ever imagine. Get your research done if you are unfamiliar with the contracts that are about to be signed (in secret).

  4. Petunia
    October 4, 2015 at 11:31 am

    The big gorilla in the room in this case as in the case with Argentina, is that these countries have armies and larger populations than the companies involved. We have not had a state actor get really pissed off at a company and its workforce, but you can see the writing on the wall. This arbitration board can rule anyway it wants and El Salvador can do whatever it wants too. Personally, I would like to see an army of lawyers and lobbyist fighting an army of El Savadorians.

    • October 4, 2015 at 12:08 pm

      It all depends on whether the US and/or its European puppets create an “emergency” requiring bombing or an invasion.

      • Sara
        October 12, 2015 at 12:15 pm

        Chris T. You are pointing to the time honored technique used by those in power when all else fails. AKA a “false flag” operation.

    • Red Flag
      October 5, 2015 at 8:44 pm

      El Salvador can control its destiny, if it wants to……it could change the rules. Look at Bolivia, it stopped drug culture and keeps out US big pharma. But it’s like here in the US—as long as we think we’re trapped by the fascism of today, we won’t find freedom for change. Americans have choices to make. Is Walmart really that important to people? do they really want the bad food, diabetes, and surveillance?

  5. J P Frogbottom
    October 4, 2015 at 11:12 pm

    The entire concept of ISDS -justice by private arbitration without recourse- is absurd.

    Thus future trade pacts TPP, TiSA, TTIP, need to be halted until ISDS language is replaced by language stating a court of competent jurisdiction in the country of the defendant is selected.

    Better ideas are encouraged to apply. Fairness rules in international exploration, exploitation, and development.

  6. Chainsaw
    October 5, 2015 at 10:04 am

    At this point in history and technology, there’s no excuse for mining companies to pollute. At all. Whatsoever. If they can’t afford to do that, the mine isn’t really profitable, and they shouldn’t be running it anyways. It seems obvious and sensible that one requirement of honest and fair resource extraction is that the bodies profiting from the extraction leave the environment in a similar or better condition than they found it, judged by biological diversity, health for humans, appearance, economic value, and every other condition valued by any other stakeholder.

    That fact that that’s so far from the current case is an exact measure of how corrupt and dysfunctional our economic system has become. Whether that’s a cause or a result of it being run by the criminally insane is another discussion.

    Put it on an individual scale – you have an apple press and a guy down the street has a neglected orchard behind his house. You make a deal to give him a couple gallons of cider if he lets you pick the apples. Great deal for you, you’ve got a thousand dollars worth of apples if you had to buy them wholesale. He’s got the grass cut in his orchard and the apples cleaned up and put to good use, and a couple gallons of cider that’ll go hard in a couple of weeks.

    Except. While picking the apples, you kill one of his kids, and two of his dogs. You break or saw whole branches off the trees in order to pick the apples on the ground instead of up in the tree. You drive over the fence, about five times, and the neighbor’s fence, letting the neighbor’s pigs loose in the neighborhood, where they eat a baby, a couple of cats, and everyone’s garden, but you feed them regularly because they keep the rats away from the apples. You sell all the sprinkler pipes as scrap aluminum, kidnap a neighbor girl who’s come for a few apples and sell her into sex slavery, rent out the back corner as a toxic waste drop-off site, and just before you leave, you spray Roundup all over the trees, so your cider has less competition on the market.

    No problem, right? I mean, you were a little slow, so they got a couple gallons of vinegar instead of cider, but that’s useful too, right? Apple cider vinegar. They sell it in the store. No problem.

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