Trade, sustainability and global governance

On 1 January 2016, the 17 Sustainable Development Goals (SDGs) in the 2030 Agenda for Sustainable Development, adopted in September 2015, came into force, replacing the Millennium Development Goals (MDGs) framework that that shaped the international development agenda from 2000 to 2015.

‘Over the next fifteen years, with these new Goals that universally apply to all, countries will mobilize efforts to end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind’.

So has the era of sustainability as a guiding norm for global governance arrived? As Jennifer Clapp explains, ‘governance frameworks are rarely guided by just a single normative idea, often it is the interaction of different norms that shapes policy outcomes’. Sustainability ‘shares the stage’ with another powerful norm - trade liberalisation. Increasingly, norms of trade liberalization and sustainability are presented ‘side by side’, as if mutually supportive. In the agri-food sector, for example, a liberalised trade regime is typically presented as not only compatible with but the means by which sustainability can be achieved.

The ‘trade supports sustainability’ argument relies heavily on the concept of comparative advantage, devised in 1817 by David Ricardo to explain aggregate efficiency gains realized when each country specialises in production of just those goods for which it enjoys comparative (if not absolute) advantage. What the theory assumes is that only goods, and not capital and labour, cross national borders. This is clearly not the case in a contemporary global trade regime, however, which is shaped by transnational corporations able to invest in ‘multiple locations around the world, and at numerous points along global supply chains’ undermining ‘that most basic assumption of comparative advantage, that is that capital is not mobile between countries’.

A Magna Carta for investors

While the ‘trade supports sustainability’ position broadly informed discussions at the Sustainable Development Summit, specific questions about how policies to achieve the SDGs might potentially conflict with commitments under preferential trade agreements and bilateral trade agreements (BITs) were sidelined. In particular, and unlike the SDGs, such agreements are enforceable though highly coercive ‘investor-state dispute settlement’ (ISDS) mechanisms. The inclusion of ISDS in a trade treaty or BIT enables overseas investors to sue national governments (but not the reverse) for profits lost, for example, as a result of appropriation of the company’s assets. The judgements (handed down by corporate lawyers, not judges) are binding and, it is said, irreversible.

A recent article in the Guardian revealed that the ISDS mechanism, which turned 50 last year, has a long and chequered history. The idea of ‘investor protection’ was originally conceived by European investors as a way to protect investments in former colonies. Herman Abs, then Chairman of Deutsche Bank Chairman described it, apparently without irony, as ‘a Magna Carta for private investors’.

ISDS was subsequently adopted by the World Bank, despite strong opposition from developing countries, in the belief it would ‘help the world’s poorest countries attract foreign capital.’ In 1964 the Bank set up its ‘International Centre for Settlement of Investment Disputes’ (ICSID), which remains the premier tribunal for hearing ISDS cases worldwide, and ISDS has since been a standard component in trade agreements with developing countries.

According to the authors of the Guardian article, a mechanism devised to protect against seizure of assets has suffered from rather an extreme case of mission creep. “The number of suits filed against countries at the ICSID is now around 500 – and that figure is growing at an average rate of one case a week.” These days multinational corporations routinely use ISDS, not only to recover money already invested, but for alleged “expected future profits”. Under this generous interpretation several governments have been sued for legislating to protect employment rights and social and environmental standards: In other words, the kind of measures that would be consistent with achieving the SDGs.

Treaty Alliance

The largest award made by an ISDS tribunal was by the Government of Ecuador, to the Occidental Petroleum Corporation in 2006, for $1.7 billion. Interestingly, while the tribunal found in the government’s favour (that the company had indeed violated Ecuadorian law) it nevertheless ruled damages be paid to the company on account of the government’s ‘disproportionate’ response of terminating the contract.

At a conference I recently attended, Maria Fernandez Espinosa, Government Minister and Ecuador ambassador to the UN outlined a series of events that have unfolded since that time. In 2007 Bolivia withdrew from the ICSID Convention, followed by Ecuador in 2009 and Venezuela in 2012. Between 2008 and 2010 Ecuador terminated nine BITS and have since declared several more to be ‘inconsistent with the country’s constitution’. The Government of Ecuador is now leading creation of an alternative, regional centre for dispute settlement under the rubric of the Union of South American Nations (UNASUR).

In her keynote speech, Espinoza reflected on ‘why are there not also treaties to force transnational companies to respect national laws, human rights and nature?’ Ecuador has, together with South Africa and several other countries in Latin America, along with hundreds of civil society organisations, formed the ‘Treaty Alliance’ in favour of a binding regulatory treaty with respect to human rights. Despite strong opposition from developed countries, in 2014 a UN resolution was passed to establish an intergovernmental working group: 

At its 26th session, on 26 June 2014, the UN Human Rights Council adopted resolution 26/9 by which it decided “to establish an open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, whose mandate shall be to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.”

Look South

Unlike the MDGs, which assumed that only developing countries were in need of ‘development’, the SDGs are indeed ‘Global Goals’ that apply to all countries. However, as Richard Jolly argues in a recent blog, ‘if the challenges are universal, so too are the lessons of experience, achievement and failures. A change of mindset will be needed – and some humility. No longer will the more developed countries be able to dispense wisdom and instructions to poorer countries about what they ought to be doing… breaking the cycle of poverty is far from easy. Which of the richer countries have done it? Not the UK, in spite of more than 200 years of growth and ‘development’. Nor the US, France, Germany or Russia’.

In a recent article in the Conversation, Ian Scoones argues that a question that is often asked; ‘what can Africa learn from Greece?’ is the wrong question. What we should be asking is: ‘What can Greece learn from Africa about effects of austerity after a debt crisis?’ Similarly, as civil society groups and citizens in the Global North grapple with implications of a raft of new trade and investment treaties (the alphabet soup that is TTIP/TAFTA, CETA, TPP and TISA) for sustainable development, surprisingly little is heard about developments in the Global South, particularly in Latin America, from where workable alternatives look most likely to emerge. So perhaps the most important lesson yet to be learned is the need to look South for lessons.

By Sally Brooks; follow her on Twitter