This is a serious issue that requires serious consideration, even if the title is a bit jovial. Last year there was an article published by the UNCTAD (United Nations Conference on Trade and Development) in its Investment Policy Hub which was titled "Investment Agreements versus the Rule of Law". This article poses a grave question that must be answered honestly.

THE SITUATION

Globalization

Over the last few decades there has been a rush of International Investment Agreements (IIAs) being signed off by a multitude of countries. These IIAs are treaties between countries that typically lower barriers of entry hence creating freer and larger markets. There is a multitude of such treaties, for example the NAFTA, ACTA, TPP, BIA, TAFTA, TTIP and so on. Some are bilateral and some are multilateral. Some are transparent and some are secretive to extreme. Many such treaties are biased, unilateral, corporate-friendly and democracy-averse. This is absolutely true.

It has been argued that such treaties are the second generation of globalization efforts that big corporations have unleashed over countries to achieve what standard globalization efforts failed: a single world-wide market (albeit not a free one).

The general strategy is the domino effect. If corporations cannot access markets due to the refusal of governments to play ball, let's say through the GATT (General Agreement of Tariffs and Trade) and the WTO (World Trade Organization), then each market will be taken through a chain of IIA's.

Let's say that corporation X residing in country A wants access the market of country D but country D refuses. Then corporation X lobbies country A to get an IIA with country B and then it lobbies country B to get an IIA with country D. Voila! market access.

The process is a little convoluted, but it is producing significant results. Very few countries throughout the world are nowadays not involved in some sort of IIA.

There is, of course, a secondary advantage of using IIA's. This advantage is that individual countries are far easier to lobby than a group of them. And why would corporations lobby countries into IIA's besides market access? Because individual countries can be lobbied into adding clauses and terms into IIAs that favor certain corporations over others.

Sovereignty

But there is a problem. Even if an IIA gives biased access to a corporation, this access can and will be limited by local laws and regulations. Corporations understand that without a way to enforce treaty clauses, treaties are not worth the paper they are printed on.

Enter Corporate Sovereignty or its politically correct title "Investor-State Dispute Settlement" (ISDS) mechanisms.

Through ISDS clauses, a corporation (any corporation) is given power to act as a sovereign entity at the same level as IIA signatory governments. In other words, although technically speaking corporations are still liable to local government rules and regulations, they have another mechanism through which they can challenge and overcome such outcomes. This mechanism is supra-national (i.e. above nations). This is possible because said corporations have new "sovereign" status. As entities with such status, they are entitled to International judicial (or pseudo-judicial) organizations.

Now, corporations are not stupid. They fully understand that if they would to appeal to any standard international court of justice, they may get a result some day in the near century. Besides, this result may go against them. So, what did they do?

If you look closely at the acronym ISDS, you will notice that the "D" stands for "Dispute", not "Judicial". That should give you a clue. In essence, the treaty accepts "dispute courts" or "international tribunals" as the final dispute settlement mechanism between "sovereign" entities (i.e. the country and the corporation). The devil is, of course, in the fine print. Who gets to be in those "tribunals"? Again, corporations are not stupid. They stack those tribunals with "their" people. And what do you think the result will be? Of course! it will be in their favor.

Examples

The above mentioned article provides three examples, of which the most outrageous is the case of Chevron v. Ecuador. Allegedly Chevron massively contaminated Ecuadorian territory harming about 30.000 people in the process. After a lengthy judicial process in US and Ecuador, Ecuadorian courts awarded Ecuadorian people 18 billion USD in reparations. What did Chevron do? It claimed its right to an ISDS process under the US-Ecuador treaty, presented its case to an "international tribunal" who promptly found in their favor and demanded that Ecuadorian authorities

“take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment”

furthermore, the tribunal clarified that

“[T]hese orders and awards were directed not only to the Respondent’s executive branch but to all branches and organs that make up the Respondent as a State, including its judiciary and legislature. Neither disagreement with the Tribunal’s orders and awards on interim measures nor constraints under Ecuadorian law can excuse the failure of the Respondent, through any of its branches or organs, to fulfill its obligations under international law.”

It you do not feel outraged by these actions, you are possibly not human, but there is much more to it.

THE WHOLE PICTURE
Let's begin by saying that this new trend of "corporate sovereignty" is very worrying. This is so because however lousy local laws and regulations may be, international quasi-private tribunals, operating on dubious international laws in a completely non-transparent way are far worse. As Libertarians we believe in freedom. These tribunals produce a system that is not once but twice removed from freedom!

Politicians

But the truth is that these "tribunals" have no weigh, none whatsoever, if a country does not sign an IIA treaty. The only source of power that these tribunals have, is the IIA treaty. Let's repeat this again, if a country does not sign, it is impervious to those tribunals. And so the first objection to all the wining from socialists and "freedom fighters" is this: start blaming your own politicians for signing the treaty in the first place!

Go to the root cause to begin with. Ask why did their own politicians sign such a stupid treaty?

Answer?

Because in reality democracy (i.e. politicians) operate independently from people who they are supposed to represent (see Politicians And Bureaucrats Job Security Through Misery). Politicians signed those IIA agreements because it was in their best interest to do so, not in yours.

And so the inevitable conclusion is that governments are to blame to begin with. What a surprise…

Common good

Now let's assume for a second that politicians have somehow signed off on those IIA treaties because they genuinely see benefits for their country. If this is so, then this ISDS system is a small price to pay for an increased standard of living. Yet, in hindsight, it would not seem to be so. ISDS's are becoming the norm where, surprise, surprise, corporations almost always win. But if this is the case, then again, politicians mis-calculated and screwed-up (what a surprise). And so, what is the remedy for this problem? Reject the treaty! Get out! Now! Now! Now!

And again we end up with politicians. If the treaty is so bad and politicians are so honest, why don't they get out? Answer? Because politicians are not honest and the treaty is not really so good.

And so the inevitable conclusion is that governments are to blame yet again.

The nature of the beast

All those bleeding heart socialists and statists claiming foul play by corporations keep forgetting what corporations are. They are ruthless profit making machines that will stop at nothing to make a buck or prevent loses. It is ridiculous to pretend that corporations behave differently. It is the nature of the beast. Greed in operation.

The problem is not what corporations do; the problem is that the proposed solution for this behavior does not work. What is their solution? Laws and regulations. The fact that corporations have co-opted this very same mechanism in their favor tells you that these solutions don't work!

It is not corporations that failed, but laws and regulations. And now that they have done so, what do statist and socialists want to do? Add more laws and regulations; but this time the "correct" ones. Right!

And who creates laws and regulations to "manage" economic activities? Governments.

And who controls governments? The power elite.

What do you think the outcome will be?

And so the inevitable conclusion is that governments are to blame yet again.

The power elite

As Libertarians we are not and we will never be in favor of "crony capitalism" or "power elites" or "well-connected corporations" or whatever you may choose to call them. These corporations impose immense damages to markets through artificial monopolies achieved by proximity to governments. Furthermore, these very same corporations inflict immense damage through highly suspicious "tribunals".

Let's be clear. Power elites do not operate in a free market and it is highly dubious that they would be able to survive in it. Power elites are free-market averse. The fact that power elites not only survive but thrive is an eloquent testament to the enabling properties of governments and politicians. Enabling as in "hiding and abetting".

And so the inevitable conclusion is that governments are to blame yet again.

Conclusion

Governments and politicians created this problem in the first place by trying to "manage" economies and maximize votes. The fault and blame rests squarely with them.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to The strange case of corporate sovereignty - Part 2