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Corporate Globalization Resistance

The Dangerous Expansion of Corporate Rights Over Citizens Rights through CAFTA
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by Global Exchange

Many people would be surprised to learn that their government has given up its sovereign right to pass laws protecting citizens' health, the environment, and labor rights. They would likely be more surprised to find out that the wheels are in motion to enact trade agreements that further threaten democracy by granting additional rights to giant multinational corporations (MNCs). This, however, is the frightening reality underlying a new trade agreement between the United States, five Central American countries, and the Dominican Republic. Investment rules within the U.S.-Dominican Republic-Central American Free Trade Agreement (CAFTA), pending before the U.S. Congress, would ensure that democracy is further eroded in exchange for corporate profit maximization.

It is not surprising, however, that the average citizen is not aware that the current situation is unfolding. This is no accident. The negotiations around these new agreements have been undemocratic, without transparency, and conducted without input from the very citizens whose lives will be affected. It is ultimately in the interest of MNCs to push for passage of these agreements in virtual secrecy, as they would likely be met with strong resistance in the face of a public dialogue.

The Growth of Foreign Investment

Foreign direct investment (FDI) is one of the most politically sensitive 'trade' issues, as it involves foreign corporations exercising control over national assets and resources through investment. When a company closes a factory in the U.S. and moves it to China to take advantage of cheap labor, it is 'investing' in China. The expansion of this FDI in the global economy has reached an unprecedented level. In 2001 more than 65,000 transnational corporations had expanded FDI through the creation of more than 850,000 foreign affiliates. That companies invest in foreign production is fine, as long as they do it in ways that respect local laws and benefit local development. Not unexpectedly, MNCs have actively lobbied governments to ensure that rules were included in CAFTA to strengthen the rights of investors at the expense of the rights of citizens.

Investment rules included in CAFTA would greatly restrict the ability of governments to implement national policies for development and poverty reduction -- the same policies that were used effectively by the industrialized countries in their own development. Furthermore, such agreements conflict with the 1962 United Nations Resolution on Permanent Sovereignty over Natural Resources, whose mandate is to regulate foreign investment by recognizing the state's permanent sovereignty over natural wealth and resources as a key component to the right of self-determination.

Investment Agreements: Following in the Footsteps of NAFTA

Investment rules within CAFTA have been drafted to model the North American Free Trade Agreement (NAFTA) enacted in 1994, maximizing the rights of foreign investors while minimizing the authority and rights of governments to pursue policies crucial to their national interest.

Preventing Opportunities for Development

Under CAFTA, governments must allow foreign investors to enter their countries and must grant them "national treatment," or treatment that is no different than that afforded to domestic investors. Specifically, they would be prohibited from providing many tax incentives, subsidies, or purchasing contracts to local developing industries that allow them to compete against foreign firms. Because of the natural advantages the MNCs have as large experienced firms, the predictable result of such disastrous policies would be a significant and unfair advantage for foreign investors at the expense of local development. That means that under CAFTA, developing countries would be prevented from taking the very same actions that developed countries took in their early stages of industrialization -- kicking away the ladder of prosperity.

Outlawing Performance Requirements

Countries typically have performance requirements for investors, to ensure that investment benefits the local economy in the long run and helps countries eventually become independent of the need for foreign investment. Performance requirements, crucial for meeting development goals, would be prohibited under CAFTA and similar agreements. If this happens, developing countries would lose the ability to demand use of local materials, local labor, or technology transfer, which stimulate growth in the local economy. Additionally, the improvement of environmental and labor standards would be nearly impossible as countries would be pressured to compete in a "race to the bottom" to attract investment. Under CAFTA, governments would be prohibited from screening investors on the basis of such criteria as worker compensation or environmental conduct.

Investor Rights Over Citizen Rights

Perhaps most alarming are the provisions in CAFTA that mirror those in the disastrous Chapter 11 of NAFTA. Under these rules, foreign corporations are given the power to legally challenge national and local laws which adversely affect the business of foreign investors, regardless of the role that such legislation has in meeting national social and development goals. These suits are filed in closed trade tribunals presided over by un-elected trade bureaucrats - bypassing domestic court systems. If the corporation wins, the accused government must then compensate the corporation in the amount of profits they claim to have lost - including hypothetical profits that they claim they would have made twenty years into the future! These expansive investor protections confer new rights on MNCs that neither domestic companies nor citizens -- who have to obey national laws -- enjoy, creating a class of "supercitizenship" for foreign corporations at the expense of citizen sovereignty.

Multinational Corporations in Action

NAFTA's Chapter 11 has already proven a powerful tool for corporate deregulation. According to the group Public Citizen, over 40 claims have been filed by corporations in NAFTA courts, demanding over $6 billion in compensation, threatening public interest laws in all three NAFTA countries.

  • In 1997, the U.S. company, Metalclad, filed a NAFTA suit against the Mexican municipality of San Luis Potosi. Metalclad had applied for a permit to open a toxic waste dump, but was denied after the site was declared an ecological reserve. Metalclad argued its case before a NAFTA tribunal which ruled that Metalclad's "property," in essence its expected income, had been "indirectly expropriated." The Mexican government was forced to pay Metalclad $15.6 million.

  • In 1998, the U.S. waste company S.D. Myers sued Canada for $20 million in compensation over a Canadian environmental law. S. D. Myers's case alleged that Canada's ban on the export of the toxic chemical PCB, a ban that was consistent with the Basel Convention, an international environmental agreement, was discriminatory to the U.S. company which wished to import PCBs to the U.S. The NAFTA tribunal ruled in favor of S.D. Myers, forcing Canada to pay the company $4.8 million. Canada later eliminated the ban.
  • In 2003, Glamis Gold, a Canadian mining firm, filed a NAFTA suit against the U.S. over a California environmental law. Glamis had planned to construct a large open-pit, cyanide heap-leach gold mine in a California Desert Conservation Area adjacent to sacred and ancestral lands of the Quechan Indian Nation. When the proposal was denied by the Interior Department, Glamis took the case to a NAFTA tribunal, seeking $50 million in compensation for lost profits due to a California regulation requiring backfilling and restoration of open pit mining near Native American lands. Glamis is arguing that the California environmental law makes it cost-prohibitive for the corporation to conduct its mining operations, and in such that the U.S. has "expropriated" the corporation's investment.

Other pending NAFTA suits include a suit filed in 1999 by United Parcel Service claiming $160 million in compensation on the basis that Canada's state-run postal service is discriminatory to private parcel delivery companies. Canadian cattle producers have recently filed a challenge to the United States Department of Agriculture's public health decision to close the U.S. border to Canadian cattle imports after a Canadian cow was found to have been infected with Mad Cow disease. These powerful NAFTA challenges to public interest regulations not only impact the specific laws they challenge, but they have a chilling effect of deterring lawmakers from enacting future laws to protect the public. In CAFTA, investor-to-state suits will be expanded to six more nations. For countries in Central America which are still developing better public interest law, the effect of million and billion-dollar lawsuits could be devastating.

Successes of Global Resistance

In September 2003, during negotiations of the World Trade Organization Ministerial in Cancun, rich countries employed strong-arm tactics to attempt to force the introduction of similar Investment rules in the WTO, despite clear opposition from the majority of developing nations. While the wealthier nations had more power, on the last day of the ministerial, large groups of developing countries came together and voiced their total opposition to the launching of new negotiations on investment and other attempted expansions of the WTO. This strong coalition of diverse developing countries maintained solidarity to oppose the rich countries' agenda, and scored a clear victory for democracy and the poor. It is imperative that developing countries continue to oppose the launching of investment negotiations in the WTO, and that citizens continue to hold their representatives accountable in fighting against CAFTA and similar free trade deals.

Alternative Proposals

Developing countries must retain the autonomy to pursue strategies that ensure that foreign investment contributes in a positive manner to the realization of national goals. Additionally, developed countries should pursue trade positions that will benefit the public welfare rather than the bottom line of a few large multinational corporations. To this end, binding obligations on investors should be instituted to ensure that they behave in a manner that is consistent with international human rights and development objectives. A fair and equitable trade agreement would include measures to counter corporate predatory business practices, anti-labor policies, and environmental degradation. Finally, in order to make corporations more accountable, enforceable international standards should be established for the reporting and disclosure of information.

Ten years of experience with NAFTA has shown that trade agreements which grant unrestrained rights to corporations are devastating to the public interest. Rather than expanding NAFTA's problems through CAFTA and other agreements, our governments should be negotiating investment rules that raise global standards, and protect the public interest. It's time for a fundamental redirecting of globalization and trade policy so that it works for positive development, and not at its expense.

For more information, see the new Public Citizen report on Ten Years of NAFTA's Investor Rights Agreement, available at

For more information on Free Trade and Services:

Citizens Trade Campaign
Public Citizen's Global Trade Watch
Polaris Institute
GATS Watch

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SPEAK OUT to your Member of Congress by calling 202-225-3121 and urging them to vote NO on CAFTA. Find helpful resources and more ideas at our Get Involved section.

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