November 15, 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 so.

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.