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  • Posted December 10th, 2017

    ‘Investor protection’ in trade deals: why can’t multinational corporations take out insurance rather than have taxpayers underwrite them?

    ‘Investor protection’ in trade deals: why can’t multinational corporations take out insurance rather than have taxpayers underwrite them?

    First some background: the Investor-state Dispute Settlement, or ISDS (new name – Investment Court System, or ICS) is a mechanism whereby corporations can sue governments that introduce legislation that they claim reduces their potential to make profit – for example, requiring plain packaging for cigarettes (Australia and Uruguay sued) or introducing a minimum wage (Egypt sued) or introducing a moratorium on fracking (Canada sued). In our current economic system, reducing corporate profits cannot be allowed, and so ICS is a way of ensuring that they’re not. These cases are heard in special tribunals outside the normal court system.

    Corporate-friendly politicians are fond of telling us that ISDS / ICS within new trade deals won’t be a problem because they haven’t been a problem with existing trade deals. However, that’s not true – they have cost EU taxpayers a lot of money, because their governments have tried to do things that most people would consider positive, or at least benign. We know that around 3.5 billion euros in fines have already been imposed on European countries in ISDS cases, but it could be much more than this, as in many cases, even the results of the cases are permanently secret. This money has to come from taxpayers, of course.

    Glyn Moody at Arstechnica gives some examples:

    For example, when Poland decided to reverse the privatisation of some insurance services, a Dutch company was able to use a bilateral investment treaty between the Netherlands and Poland to sue the latter for future losses it would allegedly suffer as a result. The ISDS tribunal sided with the company and made an award of over €2 billion (£1.4 billion). The same Dutch company sued the Slovak Republic when its government decided to reverse the privatisation of health insurance services, and won yet more “compensation” for indirect expropriation.


    A provisional contract for the construction of a coal-fired power station in Germany was granted to Vattenfall by the City of Hamburg in 2007, which included some environmental limitations in order to protect the River Elbe. Additional environmental requirements were added in order to meet the EU’s water framework directive, and final approval was given in 2008. Vattenfall then argued that the tighter environmental protections would make the project “unviable,” and claimed damages of €1.4 billion (£1 billion)—plus costs and interest—under an agreement signed by both Germany and Sweden called the Energy Charter Treaty. This included an ISDS mechanism that Vattenfall invoked. The case was finally settled in 2011, when the city of Hamburg capitulated, and agreed to accept lower environmental standards than it had demanded in the final approval. This case is an important demonstration of how ISDS can be used to bully governments into backing down from attempts to protect the public, through demands for prohibitively high damages.

    Multinational corporations already have the right to sue governments who introduce policies that companies weren’t expecting when they invested / built infrastructure in their country. But those cases are brought in public in the national courts. ICS / ISDS claims are almost always because governments have done something good! If cases were being brought against governments because they’d passed laws to subsidise pesticides or cigarettes or fracking or removal of forests, then maybe not so many people would oppose them. But it’s always because governments are trying to protect the environment or public health, or promote equality – all the kinds of things that restrict the corporate sector’s ability to make profit.

    And here’s an interesting development – if a corporation in any country opposes a policy in a country with which there is no treaty with a provision to sue, no problem – they just launch a subsidiary in a country that does. Voila!

    My questions would be:

    • Why is there no provision for governments to sue corporations for lost revenue – for example for tax avoidance, or if they close plants in countries, resulting in massive job losses and losses in tax revenue?
    • What’s wrong with corporations insuring against changes in legislation in countries in which they are thinking of building expensive infrastructure? That way costs are borne by corporations not taxpayers (I may have just answered my own question.)
    • What’s wrong with corporations entering into contracts with governments outlining compensations packages for future actions that will mean loss of money already invested?
    • Why can’t these breach of contract cases then be heard in the already-existing court system?
    • As for ‘future profits’ – when did ‘investment’ stop meaning ‘risk’. Surely that is what capitalism is all about?

    So – why can’t corporations insure themselves rather than have taxpayers pay them compensation? Over to Linda:

    UK investor protection

    Interviewed for a Telegraph article (11.11.17) Liam Fox, Secretary of State for International Trade, had this to say about investor confidence/protection (in the context of UK-based companies such as oil companies investing in countries like Mozambique):

    ‘(ensuring)  that businesses feel confident enough to enter riskier markets such as Mozambique …by creating a form of insurance that gives companies’ boards the certainty they need to push forward investment decisions and sell their services in new areas. Underwritten by UK export finance, new overseas investment insurance will offer protection to companies’ investments if they are hit by, for instance, political events.’

    So – although corporations could take out their own insurance for their investments (as activists have repeatedly suggested as an alternative to any form of ISDS, including the proposed Multilateral Investment Court), Fox is suggesting that  the UK government – i.e. UK taxpayers – underwrite corporations’/shareholders’ risk as they attempt to financially ‘clean up’ in extracting developing countries’ dirty oil. UK government underwriting of risk, would in these circumstances, be underwriting climate change caused by greenhouse gas emissions.

    There is already an export credit guarantee system, whereby the UK government underwrites any default against ‘British’ businesses (though they are usually transnational) by overseas governments. Fifty per cent of UK export credit guarantees are for arms supply.

    In my personal dealings with the Foreign and Commonwealth Office, I’ve found talking to the civil servants there is just like talking to BP. Supporting the company seems to be their top priority, though it is transnational.

    And then, having had their overseas investment risk underwritten by UK tax payers, will such companies be paying any tax here…?

    Here is the article based on the  interview.

    By the way, also in the article:

    ‘(US Secretary of Commerce, Wilbur) Ross has said he would welcome a post-Brexit trade deal, but that compromises on food regulation and tariffs would be essential.’

    So – we will pretty certainly be held to ransom on food safety.

    Liam Fox

    Dangerously, from this article and from other reporting of Liam Fox, I pick up that:

    • he’s very confident, obviously working for the all-powerful City of London.
    • he has good reason to be because, at this stage, he looks more secure in his ministerial position than anyone else, including the Prime Minister, bar a change of government
    • this is despite his having to resign from a ministerial post previously, and his formalised connections to US big business
    • he is quite pragmatic (his investor protection solution)
    • there is no hint in his well-worked-out, positive rhetoric on prospective trade deals that he intends to take any account whatsoever of what actually matters to people

    The views expressed in our blog are those of the author and not necessarily lowimpact.org's


    • 1dave December 24th, 2017

      The Collusion between corporate City of London and Government is obvious. So to talk of the government being hindered in their trying to do good for the people is silly. The city of London and Government are one and the same with possibly a few naive politicians trying to win votes, acting the part of democratic representative or feebly attempting altruism, just my 2 cents as an observer. Surely you would never encourage citizens to vote ?

    • 2Dave Darby December 27th, 2017

      I think that there are certainly politicians who would like to do good, and governments are often forced by public pressure to do things like introduce plain packaging for cigarettes (for example). But I think that in the corporate-state alliance, the state is very much the junior partner, and if it doesn’t roll out the red carpet for the corporate sector, there will be algorithmic capital flight that will ensure that the party in power won’t be in power very long. Personally I’m much more interested in building the solidarity (non-corporate) economy than voting, although Corbyn is very keen on co-ops, so if he could get in, and only lasts a term, if he can get legislation through that benefits the co-operative sector, then great. Yes, a future (more) pro-corporate government may reverse that legislation, but any boost that the co-op sector can get is good by me.

      To maintain state spending, governments have to borrow from banks, having given them a monopoly licence to create money from nothing – but with interest attached, payable by taxpayers. In those circumstances, yes, I’d agree that elections are a bit of a side-show.

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