For centuries, there was little real distinction between trade and piracy.
“European trade with Asia, Africa, and Latin America throughout the early modern period was characterized as much by plunder as by exchange,” write Pia Eberhardt and Cecilia Olivet. The methods may have changed, these corporate-watchdog researchers argue, but the relationships haven’t. The plundering continues, by means considered legal by the powers that write the laws.
“In the 18th and 19th centuries, the governments of England, Netherlands, and France were so thoroughly involved in monitoring and protecting trading ventures that they created formal colonies and imposed European laws on subjugated territories,” Eberhardt and Olivet write. “Extracting wealth, including slaves, from other nations was standard practice.”
Trade and colonization were intertwined even earlier: after 1500, these factors were united as public-private ventures. Joint-stock companies like the (British) East India Company and the Vereenigde Oostindische Compagnie (Dutch East India Company) are two of the best known. “Free trade” has always been backed by state power and the intermingling of the investor and governing classes in those states.
The state helped protect investors in the home country while projecting financial and military might far from home in the service of those investors. Those investors were, of course, typically the ruling elites themselves, who governed to protect and increase their wealth. Pace Adam Smith, there was a very visible hand of capitalism: it held a gun. The state’s gun. Usually a lot of them: “gunboat diplomacy” was another way of saying “gunboat capitalism.”
Today’s gunboat is the law. Modern pirates roam the Earth as part of the contemporary foreign investment system, extracting billions from foreign governments in claims made by transnational corporations (TNCs). This arbitration industry has, write Eberhardt and Olivet, “effectively reinstated a neocolonial regime” through the international legal system. It does so via the use of secretive legal proceedings known as investor-state dispute settlements (ISDS). Written into investment treaties—powerful states dominating weaker, or corruptly led, states—ISDS allows a corporation to blame a foreign country for their (the corporation’s) failure to extract as large a profit as anticipated in operations in that country.
“Asserting that changes in fiscal, environmental, or social policies have harmed them, TNCs have claimed that foreign governments should compensate them for the loss of potential revenues,” note Eberhardt and Olivet.
It’s an insurance system for profit, at the expense of the target country’s citizens. International investment deals challenge the ability of sovereign states to protect human rights, labor rights, public health, and the environment. In essence, the target country’s people pay twice, through “damages” to freebooting TNCs and for all the damage done to them and their future by the TNCs and the predatory financial system they represent.
ISDS cases are tried in the International Center for the Settlement of Investment Disputes (ICSID; Washington, DC); the Permanent Court of Arbitration (The Hague); the London Court of International Arbitration; the International Chamber of Commerce (Paris); and the Stockholm Chamber of Commerce.
By 1996, having been in existence for thirty years, the World Bank-based International Center for Settlement of Investment Disputes was averaging slightly less than one case per year, write Eberhardt and Olivet. Since 2006, the ICSID has seen an average of thirty-seven cases per year (the other arbitration courts have also seen big increases). The increase is the result of two factors. First, the number of both bilateral and multilateral trade agreements have skyrocketed. There were some 400 of these in 1988; in 2016 there were more than 3,300. Second, TNCs have “become much more aggressive seeking arbitration,” with law firms, financiers, and arbitrators scouring the world looking for cases.
“Claims of $100 million are now so commonplace as to escape notice,” write the authors, and claims surpassing $1 billion are not as unusual as they used to be. The top twelve respondent states (in 2017) were Argentina, Venezuela, the Czech Republic, Spain, Egypt, Canada, Mexico, Russia, Ecuador, Poland, India, and Ukraine.
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“Governments of dozens of nations have been challenged for adopting taxes, fiscal policies, bans on harmful chemicals, bans on mining, requirements for environmental impact assessments, or regulations relating to hazardous wastes,” the authors explain. Local courts may be bypassed completely, as “arbitration panels are strongly biased in favor of private companies.”
Corporations win most of the time. Those “awards are usually paid by governments, which must pay to prevent seizure of state property, including bank accounts in other countries.” And there is no formal appeals process.
Colonialism pioneered international wealth extraction. Neocolonialism continues the process in more subtle, but just as devastating, ways.
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