Tipping the balance: new global corporate law

The Transatlantic Trade and Investment Partnership (TTIP) being secretly negotiated between the USA and the EU countries is widely criticised for opening the way for powerful corporations to challenge legitimate governments and use unaccountable arbitration processes to overturn democratically agreed policies.  

Were TTIP agreed, it could be used to block changes in tax policies, such as removal of unnecessary tax exemptions.  Finance Watch cites a leaked copy of the European Commission’s draft negotiation mandate, which says the TTIP carve-out should be used

” ‘in case of serious difficulties for monetary and exchange rate policy, or for prudential supervision and taxation’. In practice, this would mean that the financial lobby could always argue that the regulations proposed are too burdensome.”

Now, in this guest blog cross-posted with permission from Lawyers for Better Business (L4BB), Adrienne Margolis comments on a new paper warning that TTIP challenges “the very essence of democracy”.

The law is being used to benefit political and economic elites and increasingly being skewed in favour of global corporations. What can be done?

The Dutch based Transnational Institute publishes an annual report on the State of Power, to co-incide with the World Economic Forum in Davos. This year’s edition kicked off with an article by professor Juan Hernández Zubizarreta of the University of the Basque Country, entitled “The new global corporate law”. It argues that “corporations intervene in regulations designed to control them”, which is undermining the rule of law and “the very essence of democracy”.

Professor Hernández reminds us that the annual revenues of corporations like Walmart and Shell exceed the gross domestic product of countries such as South Africa and Venezuela. The law protects multinational corporations’ contracts and investments through “the norms, treaties and agreements that make up a new global corporate law, the so called lex mercatoria.” Meanwhile, the international human rights law system is fragile and national legal systems have been weakened by neoliberalism.

He argues that the balance needs to be redressed, through a wider concept of legal certainty. “True legal certainty would situate human rights law above the new global corporate law, placing the interests of the majority of the population above those of the minorities that control economic power.”

Hernández illustrates his point using the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the European Union and the USA. The aim is to eliminate trade and regulatory barriers, but Hernández warns that the treaty includes proposals such as eliminating labour rights and environmental regulations, deregulating the finance sector, and opening up public services to the private sector. He believes it will be “part of the judicial armour that limits the exercise of democracy and peoples’ sovereignty”.

TTIP negotiations have been under way since 2011. The European Parliament should be kept informed about international treaties, with full transparency at each stage of the negotiations. But the TTIP talks have largely been conducted in secret. Lobbies representing global corporations have played a central role: Hernández notes that between January 2012 and April 2013, 520 of the 560 meetings held at the EU on the treaty were between the European Commission and private lobbies. Only 8% (40 meetings) were with groups representing the public interest. This trend has continued.

At the end of 2014, the Commission signalled a willingness to be more transparent, publicising details of contacts with lobbyists. In November trade commissioner Cecilia Malmström told the European Parliament that more documents about TTIP were available to the public but admitted that “more can be done”.

But treaties like TTIP continually shift the balance towards corporate interests, Hernández says. “If one treaty is abandoned, another is ready to replace it”. He argues that the entire trade and investment model must be rejected.

Within TTIP itself, he points to four elements that will have ‘devastating effects’ on the rights of people.

The first is downward harmonisation. This means that where EU rules are stricter than the US, the US rules will be adopted and vice versa. “Harmonisation is achieved by deregulating the rights of people in all areas that are susceptible to being ‘bought or sold’ since by the logic of capitalism, barriers that exempt collective goods such as water, health or food from market profit must be abolished,” he argues.

Regulatory convergence poses more dangers. The proposed Regulatory Co-operation Council for the TTIP will operate independently from member states and institutions, Hernández says, “as a supernational legislative power that is beyond any democratic control ”.

Private tribunals to settle investor-state disputes will also favour the interests of transnational corporations, Hernández adds. “It is justice for the rich as only corporations can file complaints against states and there are no formal provisions to allow host states to file against foreign investors.” Corporations can use the tribunals to appeal the decisions of ordinary courts but the rulings of the arbitration courts cannot be appealed.

The investor state dispute settlement clause (ISDS) in TTIP has been so controversial, that it led to a temporary suspension of the TTIP talks last year, while the European Commission launched a public consultation. More than 1,000 civil society organisations responded, and the Commission had to extend the deadline. Meanwhile, a group of law firms with expertise in arbitration set up The European Federation for Investment Law and Arbitration (EFILA), to explain the benefits of investor state arbitration.

Hernández sees another danger in normative principles. He says they are open to interpretation in ways that could favour corporate power. For example, national investors would not be able to receive aid from the state because it would violate the national treatment principle. It would be difficult to reverse the privatisation of a public service, because of the high costs involved, if a multinational decided to sue the state in international arbitration courts for compensation.

Hernández also assesses the role of UN Guiding Principles on Business and Human Rights in controlling global corporations. ”While some institutions and NGOs believe that the Ruggie framework represents some progress, the truth is that it simply reproduces the same logic used in the past few decades: they are merely guidelines that are not binding in nature and therefore are unenforceable.” He contrasts this with the “legal fortress” protecting the rights of global corporations and concludes that “global corporate law imposes itself at the top of the human rights protection system.”

Having outlined the problem, Hernández suggests a solution. “It is key to ensure that the rights of individuals prevail over legal certainty for major corporations,” he says. An International People’s Treaty on the Control of Transnational Corporations is being developed. It states: “The aim is to build and analyse international law ‘from below’ from the point of view of social movements and of resistance struggles of men and women – and not from the economic and political elite’s state centred vision.”

A legally binding international framework to regulate global corporations must address key issues, Hernández says. National and international legal norms must be binding for natural and legal persons. Global corporations’ shared liability for the activities of their suppliers that violate human rights, must also be regulated. There should be specific regulations to prohibit patenting forms of life, oblige corporations to pay reasonable prices to suppliers, control security personnel working for them and oblige them to prohibit discrimination.

In the case of TTIP, international human rights law should be superior to the rights of global corporations. This would mean “compliance with human rights law is mandatory for the entire international community”.

Another key issue is the need to establish a world court on transnational corporations and human rights. “States cannot be the only axis upon which international law is built”, Hernández says. He concludes: “Peoples of the world must unite in recognition that international human rights law is the result of the struggles of millions of men and women and thousands of organisations around the world. It is within this framework that the call for an international people’s treaty is rooted.”

Many of the points that Hernández raises will be familiar to the business and human rights community, but it is important to be reminded of the role that the law plays in entrenching corporate power. His focus on TTIP is timely, while his call for human rights law to take precedence over the rights of corporations chimes with the moves to establish a legally binding international human rights treaty through the United Nations.

The New Global Corporate Law by Juan Hernández Zubizarreta
Published in State of Power 2015. The publication is free and also features essays on mining corporations, social movements, finance and economics.  Download it here.