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PAUL JAY: Welcome to The Real News Network. I’m Paul Jay in Baltimore. In 1966 there was an international agreement that established the international convention on settlement on investment disputes. This was a international tribunal that was supposed to, quote-unquote, be fair and equitable in handling the relations between international corporations and individual countries, particularly developing countries, and how those countries could expropriate private property, and if they did, how would those settlements be resolved. Now the system seems not to be working.
In fact, perhaps it never did. Now joining us to talk about all of this is Raghavan. Raghavan is an international trade and investment expert. He served as chief editor of South North Development Monitor (SUNS) from 1980 to 2005, now serves as editor emeritus.
He’s also served as the editor of Third World Economics and is Geneva representative of Third World Network.
Thanks very much for joining us, Raghavan.
CHAKRAVRATHI RAGHAVAN: Okay. Thank you very much. JAY: So explain to us how this mechanism is supposed to work. And how is it actually working?
RAGHAVAN: The mechanism was set up originally by the World Bank auspices. Foreign investors were worried that in the newly independent countries after they invest–say they invest in a factory or something producing goods–and suddenly the property’s expropriated by the local government.
So in order to give some assurance in this, the World Bank sponsored this convention, and the convention provided for all these kind of investor disputes, intended, really, originally, for the expropriation of property to be settled through a arbitration process. And the convention provides that when an investor, foreign investor in country A has a dispute on this matter about nationalization or whatever it is, if it’s country A, they could raise a dispute, and country A will nominate an arbitrator, and the corporation or investor will nominate an arbitrator, and the two of them will choose a third person to serve as neutral chair, so that the three members will hear the case and give an award. It worked fairly well initially, when the whole disputes were essentially about expropriation, because countries, despite everything else, wanted foreign investors to come in.
And so they were willing to give up a little bit of their rights in these matters. But more recently what is happening is the same kind of process is being done under bilateral investment agreements between countries, under which the corporations is enabled to sue the country concerned directly under these terms of the bilateral investment treaties. By and large, these treaties have more or less what is called fair and equitable treatment.
Now, generally, by normal process, like a due process in the United States, we all understand what is fair and equitable treatment. But it is really getting out of hand as to what is fair and equitable treatment, because this group of people who are in the panel, sometimes they act as panelists, sometimes they are the lawyers arguing for companies before the panel, and sometimes they are also people who move from panel to government and governments back to panels.
And they’re also the same people who are kind of in all academic journals, so that they more or less create a legal thesis for whatever they are saying. But generally it is not at all very clear. Two cases now has recently come up, but one is coming–another is coming up that is really going to have real consequences. The case that is coming up in this [incompr.] is Philip Morris tobacco, which is trying to sue Australia for its–because it has put a plain packaging act to discourage tobacco smoking.
JAY: Just let me jump in for a second here. Yeah, this is where they passed a regulation that cigarettes have to be, like, in brown wrapper, and then they have messages about it causes cancer and things like this.
RAGHAVAN: Yes. Australia is one of the countries that has been known steadfastly, ever since the tobacco problem, cancer problem came up, to be acting to discourage smoking. It has been taking various measures, like public advertising, etc.
, etc., etc. Some time ago, Australia announced that it is going to have–everybody should be able to sell cigarettes in plain packaging with some kind of a small-letter thing to say which kind of a cigarette, etc., so that it would regulate the way in which cigarettes can be sold. And Philip Morris is the company that is affected in Australia.
Now, what they have done is–now, Philip Morris, registered in Australia, which is incorporated in Australia, cannot sue under–Australian government under the foreign investment treaty act. They took the case before the Australian High Court, supreme court. They lost the case there in Australia. So what they have done is Philip Morris international, through its Hong Kong branch, purchased shares in Philip Morris Australia about ten months or 15 months after Australian government announced that it was going to do plain packaging.
Now they’re threatening to take the case under the bilateral investment treaty to one of these panels.
Now, the real question there is on the grounds that by introducing this plain packaging, Philip Morris’s international property rights in that has been violated. The other thing that they are trying to say is, by this kind of a provision, Philip Morris’s expectations of profit are being reduced. There is undoubtedly total consensus. Health–all health experts, there is a consensus that tobacco smoking leads to cancer and it leads to health problems. And yet here it says that if you act on this matter, you are reducing my profitability, and therefore my rights are violated.
This is one case.
JAY: So what I don’t understand about this is if this plain packaging law applies to all Australian companies, I thought the whole point of this was just to make all companies treated as if they were national companies. Why do they have a right to this international mechanism?
RAGHAVAN: They say that Hong Kong, Philip Morris Hong Kong, which has invested in Australia, Philip Morris, as a result of this action, the Philip Morris Hong Kong has profitability in–what was a very profitable enterprise is going to be reduced, and therefore I can take you to court. That is their argument.
JAY: Outside of the Australian legal system, ’cause the same argument could be made by Australian tobacco companies who could say the same thing.
RAGHAVAN: No, no. They have made the argument in Australia and they lost it. It is really against all concept of national systems of rule of law. Some of these tribunals and rulings are really very scandalous.
For example, a recent–one of the cases was Bulgaria was brought before the panel. And, actually, after a lot of these hearings, Bulgaria actually won the dispute. Yet in spite of it, Bulgaria was asked to meet–pay costs. In India, there was an Australian party, private party, which had a contract with an Indian company. And the contract provided for an arbitration.
And there was a dispute as to the price at which the contract was settled; a dispute arose about the terms of the contract. And when the dispute came up, the arbitration panel sitting in London gave an award. Now, in India, under the Indian rules and regulations, interpreted by the Supreme Court of India, such arbitration panels can be challenged in India. So the Indian party went before the high court where it was headquartered, Calcutta, and challenged the award. Now, the Australian party, instead of meeting the challenge there, went to some other high court in Delhi and wanted the award to be enforced.
When this was going on, an appeal, special appeal was made to the Supreme Court. The Supreme Court decided to revisit all its previous cases to be sure that it has been correct in saying that Indian courts have jurisdiction in these matters. Now what happened was the Australian party in the meanwhile went before a tribunal again, another tribunal, under the Australia-India Bilateral Investment Treaty and said that the Indian Supreme Court is incompetent and inefficient, because the other case has been taken long time for delay. As a result of it, very recently, this tribunal sitting in Singapore has awarded $9 million damages against the Indian government on the ground that the Indian government has not been able to make the Supreme Court more efficient. You got other kind of egregious kind of things like this.
JAY: Talk a bit about the Argentinian example.
RAGHAVAN: In the case of Argentina, part of the problem arose, for example, if you go and make an investment that you are going to supply clean water, water supply, and if you are unable adequately to do it and the state steps in to take over those responsibilities and you then claim compensation, on what basis? You don’t do your contract and you don’t–you actually do less than your contract or your promise, and then you come and say that I must be paid compensation because I have not been able to be more profitable because the government is enforcing quality standards.
I mean, this is just inacceptable. You know?
This is a kind of attempt to put the countries back into colonial-era rule, where the colonial powers could decide what should be done or what cannot be done.
JAY: Alright. Very good. Thanks very much for joining us. RAGHAVAN: Thank you.
JAY: And thank you for joining us on The Real News Network..