By Bill Rosenberg
A new breed of super-corporation and super-investor is being grown by recent international trade and investment agreements.
Foreign corporations have been given the power to demand compensation for legitimate government actions supporting the environment or public services, or even their reversal. These are unprecedented rights not shared by local citizens and companies.
Under the North American Free Trade Agreement (NAFTA), governments have recently been required to pay corporations huge sums when their profits have been threatened by actions taken to protect people’s health and the environment.
In one example, the Ethyl Corporation sued the Canadian government for US$250 million for restricting use of its petrol additive MMT, because of its danger to people’s health and car emission systems. Canada was forced to repeal its ban, pay US$13 million in damages to Ethyl and withdraw its assertion that MMT caused damage.
In another case, currently under appeal, Metalclad Corporation, a US waste disposal company, was awarded US$16.7 million when the small Mexican state of San Luis Potosi refused it permission to re-open a waste disposal facility after it was revealed that subterranean streams supplying water to the local community ran under the landfill. According to the Mexican government, “Metalclad knew the local community opposed it and they decided to force the situation, ignored the issue of the local permit and built without having a permit.”
Why should we worry? Because in 1988 and 1995 “Investment Promotion and Protection Agreements” were signed with China and Hong Kong. Similar ones were developed, deliberately avoiding public scrutiny, signed in 1999 with Argentina and Chile, and await only their ratification. All have similar provisions to NAFTA’s “super-corporation” powers.
The deal the government is now negotiating with Hong Kong will be based on the investment agreement and on last year’s wide-ranging Singapore agreement. It will further strengthen investors’ ability to undermine policies which have been arrived at by democratically elected central and local governments.
Two provisions lead to this situation. First is so-called “creeping expropriation”. “Expropriation” usually means government confiscation of an asset, but this provision extends that to include loss of profits or the asset’s value. For example, loss of value or profits often occur if improved environmental standards raise the cost of running a waste dump or a factory.
Second, disputes procedures allow investors to take central government to international arbitration. US attorney Lydia Lazar describes this as having “had a profound impact on the balance of power between private economic interests and sovereign states”. Further, arbitration tribunals “reflect the economic interests of businesses. Arbitrators do not explicitly incorporate any other interests, such as environmental, social, or political concerns”.
Worse, the arbitration procedure is
secretive and privatized. The tribunal is appointed by the parties to the dispute. Affected local
authorities, neighbours or employees cannot take part in hearings. They are
unlikely even to be aware that a dispute is being heard: hearings are normally
held in secret. The final decision is secret unless both parties agree to
release it.
Recent examples that could be considered “creeping
expropriation” include
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The creation of the “People’s Bank” is likely
to lead to loss of profits and asset values of the existing large overseas
owned banks whose performance has led to public support for the new bank.
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Renationalization of ACC led to loss of profits
and the value of insurance company assets.
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The 1998 electricity reforms forced many companies
to sell parts of their operations. Had they sold at a loss, they could have
argued it was expropriation.
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Slowing the Marlborough Sounds fast ferries by
the Marlborough District Council, to stop shoreline damage and danger to small
vessels, reduced the profitability of ferry owners Tranz Rail and Top Cat.
Investors need not be from Hong Kong to gain powers under the investment agreement. A Hong Kong shelf company is all they require. Easily registered, it may also be useful to avoid tax and other legal constraints. Many overseas investments in New Zealand are held through Hong Kong subsidiaries, including investors from Australia, Bangladesh, China, Indonesia, Luxembourg, Malaysia, Monaco, Saudi Arabia, Singapore, Switzerland, the UK, and the USA.
Strengthening of super-investor status is not the only danger of an agreement with Hong Kong. For example, we would lose further control over “hot money” from Hong Kong that undermines our currency, and over foreign investment. This control is essential to protect ownership of land and fishing, and economic development.
Is Hong Kong investment so desirable that we should take these risks? As we have seen, some of it is not “Hong Kong” at all, while more is owned through tax havens such as the British Virgin Islands (Hong Kong’s biggest investment partner). Billions are parked here temporarily.
Examples include Big Fresh and Woolworths, owned by Jardine-Matheson, incorporated in Bermuda; and CDL Hotels, the largest hotel owner in New Zealand, owned by a Hong Kong-based Cayman Islands subsidiary of a Singapore company.
“Real” Hong Kong investors have focused on commercial property and construction, which provide few jobs and are hardly areas crying out for investment. They include owners of central Auckland buildings, and majority ownership of the largest listed property company in New Zealand, Trans Tasman. The formerly New Zealand owned construction firm, Downer Group, is majority Hong Kong owned.
Hong Kong interests also own a number of farms and high country stations, and numerous investors have bought small blocks of forestry land.
Hong Kong’s wide-open economy provides few identifiable gains from this deal, and much greater risks. Rather than continuing the stampede down the free trade slope which is so inconsistent with this government’s rejection of the free market, we should be extricating ourselves from dangerous agreements such as those with Hong Kong and China.