Multinationals Use International Tribunals to Overpower Nation-States

A leaked document posted at Public Citizen last night offers a stark reminder of the rising power transnational corporations enjoy in the domestic settings of nation-states where they do business. The Huffington Post’s Zach Carter writes that “The newly leaked document is one of the most controversial of the Trans-Pacific Partnership trade pact. It addresses a broad sweep of regulations governing international investment and reveals the Obama administration’s advocacy for policies that environmental activists, financial reform advocates and labor unions have long rejected for eroding key protections currently in domestic laws.” As Carter points out, “The terms run contrary to campaign promises issued by Obama and the Democratic Party during the 2008 campaign.”

The threat faced by nation-states from the growing power of multinational corporations is very real. At the center of concern is the power that multinationals have to override the domestic laws of countries through the arm of international tribunals tasked with adjudicating trade disputes between states and multinational firms. The most important example that illustrates this concern, as Carter rightly points out, is the case currently before a World Bank tribunal assessing the claims of a Canadian firm arguing for its right to mine for gold in El Salvador irrespective of the objections of the country’s government and people.

The case of El Salvador is worth more consideration that Carter is able to devote in his article. In early 2009, the multinational firm Pacific Rim Mining Corporation filed suit against San Salvador for its refusal to allow exploitation of gold deposits in El Salvador’s rural north. The corporation claimed that the government violated its Chapter 10 responsibilities under the Central American Free Trade Agreement (CAFTA) by refusing to issue exploitation permits after Pacific Rim filed an Environmental Impact Assessment in accordance with El Salvador’s national law.

The stakes for Pacific Rim were potentially quite high. The corporation had began exploring for gold in El Salvador years earlier, and in fact was given the green light by a previous administration to map out possible sites where the country’s deposits could be exploited to greatest profit. Pacific Rim subsequently identified some 25 sites where they believed gold could be successfully mined. But as exploration efforts expanded, so to did the worries of environmentalists and social activists. Critics of Pacific Rim’s intentions argued that mining operations would contaminate the country’s water channels and arable soil with the cyanide-laced water used to extract gold from subterranean rock. A sustained protest movement formed around the issue which succeeded in moving public opinion against the corporation’s presence in the country.

But the stakes for El Salvador are even higher. If the tribunal finds in Pacific Rim’s favor, the country would be forced to pay out damages it cannot afford. While the country’s economic situation is not nearly as dire as some of its regional neighbor’s, its fiscal health is far from secure. Just recently, the country’s economic minister stepped down after the International Monetary Fund shut the tap on a $750 million dollar loan and budget numbers took a turn for the worse. The Wall Street Journal reports that “El Salvador’s economic growth of 1.5 percent last year was lower than projected, while public spending and debt soared past expectations.” Another possible outcome from the tribunal’s deliberations is a negotiated settlement. The most likely outcome would involve amending El Salvador’s environmental and mining laws which in turn could open the door to foreign corporations and ease access to the country’s natural resources.

Barack Obama was a staunch opponent of CAFTA before he was president, which makes the leaked trade document especially upsetting. The Obama administration, despite its rhetoric to the contrary, has largely failed to curb the power of multinationals to hold sway in domestic policies. But the documents published by Public Citizen last night suggest that the White House is actively in league with them — a revelation that should give even Obama’s staunchest supporters pause and offer incontrovertible evidence that on this issue, at least, the president and his challenger Mitt Romney hold the same policy preference. Thus, regardless of the electoral outcome later this fall, supposed allies of the United States can expect to receive a raw deal.