segunda-feira, 30 de novembro de 2015

Towards Global Corporate Rule

Prabhat Patnaik

THE United States is putting in place a new architecture of global corporate
rule through a series of investment treaties which it is negotiating with
several countries at present. When all these treaties come into effect, the
extent of their jurisdiction will cover as much as 80 percent of the global GDP,
ie, virtually the entire world economy. These treaties include a set of
Bilateral Investment Treaties (BITs), the Transatlantic Trade and Investment
Partnership (TTIP), and the Trans Pacific Partnership (TPP). Since India is
being goaded into entering such an arrangement, it is important for us to study
this architecture with care.



There are at least three significant features of these treaties. Of these, the
most significant one is the ISDS, or the Investor-State Dispute Settlement,
mechanism. According to it, private investors will be able to sue a sovereign
State in a private arbitral tribunal. The sovereign State in other words
forfeits its right to act freely in the public interest to restrict the
operations of a foreign investor. In case it does so act, it would not be taken
to a court which is located within its own country, and which is set up under
its own Constitution; it would instead be taken to a court which is set up under
the treaty in question and is enjoined to “protect” the private investor from
encroachment by the State.

Let us see what this means. In India in the early seventies, the Foreign
Exchange Regulation Act (FERA) was passed which put a number of restrictions on
foreign companies. Had India been at that time a signatory to such an investment
treaty, then foreign companies could have taken the government to a private
court, enjoying jurisdiction over the State and placed above the Constitution,
to contest such an abridging of their rights; and they would, most likely, have
won the case. And indeed because of this very likelihood, the government would
not even have dared to enact FERA, for it would have seen the futility of doing

It follows therefore that any successor government in a country that has entered
into such a treaty, becomes bound by what a previous government has signed; and
the court that decides on the propriety of any action by such a successor
government is not one committed to the Constitution of that country, and hence
to the vision underlying it (which could conceivably lead to its ruling in
favour of the government on the grounds that it was serving the public interest
as visualised by the Constitution), but one set up under the treaty. Such an
investment treaty in other words not only represents a gross encroachment on the
sovereignty of the nation-State, but hinders in principle the ability of the
State to fulfill its Constitutional mandate.

Needless to say, it also represents a gross violation of the principle of the
sovereignty of the people which is the foundation of democracy. The people may
elect a government to take measures that ameliorate their economic hardships,
but the government will be unable to take any such measures if they impinge in
anyway upon the interests of the foreign investors; and it is difficult to
imagine any economic measure of significance that has absolutely no effects,
either immediately or potentially, on foreign investors. Even land
redistribution will be ruled out under such a treaty because it is likely to
entail some seizure of land from foreign investors who possess it, or, at the
very least, their being denied potential access to it.

Attenuating the possibility of democratic assertion by the people, so that no
restrictions are placed on the State’s “protection” of their own interests, has
always been a matter of concern for foreign investors. Trapping the country in
the vortex of globalised financial flows has been one obvious way of ensuring
this; for, any State that takes action against foreign investors then runs the
risk of capital flight. But this “safeguard” does not appear sufficient to the
foreign investors. It is noteworthy that in 2004 when the Vajpayee government
was voted out of office, The Wall Street Journal had commented that the decision
to choose a government should be left not just to the country’s electorate but
to the entire body of “stakeholders” in that country, including the foreign
investors. The treaties being pushed by the US are meant to ensure that even if
the electorate chooses a new government, the foreign investors are insulated
from any possible adverse effects of such a change.

The second feature of these treaties is that if by any chance the government
does take over the property of foreign investors, it is compelled to give
“prompt, adequate and effective” compensation. The treaties usually specify that
such compensation must be at the prevailing market rate, and not just at some
“fair” rate. Even if the foreign investor had originally obtained a piece of
land at a throwaway price, if that land has to be surrendered to the government
then the compensation must be at the “market rate”.

This makes it very difficult for the government to acquire any such land or
property, since it typically lacks the resources for paying such hefty
compensation. Taking over land from foreign-owned plantations for redistribution
among the landless, for instance, would become impossible in any country that is
under thralldom to such a treaty, for the financial resources for paying such
compensation are unlikely to be available to the government.

Besides, any asset redistribution, by its very definition, must mean seizing the
assets of some for the purpose of distribution to others. It must in other words
mean a reduction in the asset ownership of some and an increase in asset
ownership of others. If every instance of seizure of assets must be accompanied
by compensation at market rates, then there is no reduction in asset ownership
by the affluent, but only a change in the form of the asset owned: an asset held
in the form of land merely gets converted to money without any reduction in its
value being suffered by the owner. Asset redistribution in short gets ruled out,
at least as far as foreign capital is concerned, in any country that is a
signatory to such a treaty.

The third feature of such treaties, which for instance characterizes the TPP, is
that foreign investors are supposed to be treated on a par with domestic
investors in every way, including in the matter of ownership over land and
mineral resources of a country. Since the term “domestic investors” here also
includes public sector investors, this means that any effort at promoting
self-reliance by giving preference to public sector units, is ruled out by such
treaties. A country cannot express preference for domestically-developed
technology over what the foreign investor has; it cannot achieve technological
self-reliance; it cannot make any effort to preserve foreign exchange by
restricting the repatriation of dividends to the owners of a foreign company, of
interest payments to foreign creditors, or of payment of royalty and fees to the
parent company of the foreign off-shoot that is operating in the country.



Given the fact that the world is already characterized by monopoly control over
technology by the advanced capitalist countries; by a tendency on the part of
the rich in the periphery to shift their wealth to the metropolis; and by
grossly unequal power relations between the metropolitan countries on the one
hand and the periphery on the other; what such a stipulation basically means is
that the dichotomy between the two segments of the world will be perpetuated.

The treaties being imposed by the US on a host of countries of the third world,
in short, by insisting upon equality of treatment between domestic and foreign
investors, actually serve to perpetuate the inequality that exists between the
two segments of the world.

Capital requires, wherever it operates, the support and protection of the State.
When capital operates globally, it typically requires global protection. But
individual nation-States are not in a position to provide such global
protection. Even the mightiest of the nation-States, the United States, is not
in a position to provide such protection, for that would entail committing
extraordinarily high levels of manpower and resources all over the world which
it is loath to do. And there is no world-State on the horizon, not even a
consortium of advanced capitalist States, which could take on the role of
protecting globalised capital. Besides, even if there could be such a
consortium, it would require for its purpose some legal apparatus, some
framework of agreed regulations through which it could act.

The investment treaties being worked out by the US are meant to create such an
apparatus; they represent a transition to a set of supra-nation-State
institutions that would serve the needs of globalised capital by offering it
“protection” wherever it operates. What is noteworthy however is the fact that
these are not institutions of any consortium of nation-States (like for instance
the International Court of Justice); these are private institutions. We are not
in other words witnessing a transition to a set of supra-nation-State
governmental institutions; we are witnessing, through these treaties, the coming
into being of a set of supra-nation-State private institutions. Globalisation of
capital is spawning at present a tendency towards global corporate rule.

November 29, 2015

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