Published by Fern (March 1999)
The
Law In Unsafe Hands
The
use of private contracts to undermine
national
and international legal commitments
As
attempts within the Organization of Economic Cooperation and Development (OECD)
and the World Trade Organization (WTO) to set far-reaching trade and investment
rules at the international level have met with serious setbacks, the objective
of allowing companies to operate on the basis of self-regulation and to decide
which social, environmental and labour constraints they are willing to accept
has taken more circuitous routes towards its realisation. One of the most
important of these is the phenomenon of private ‘sponsorship’, in some cases
amounting to authorship, of national laws, particularly in developing countries
with weak governments. Such tailor-made legislation, frequently written by the
very multinational enterprises (MNEs) being regulated, is being used to give
binding legal value to private project conditions which violate the provisions
of national or international laws. This blurring of private and public law
allows companies to undermine the accepted rule of law.
Such
contract-laws are by definition ‘private’ and therefore subject to rules of
business confidentiality. Yet the laws they are privately altering are public
laws, which have been adopted by Ministers and Parliaments with the
participation of national citizens. The phenomenon thus creates a two-track
legal universe, where the visible phenomena may be seriously distorted by a
parallel cosmos of invisible yet binding decisions.
As the
Canadian Citizens’ Council on Corporate Issues noted in a submission to the
OECD concerning its proposed Guidelines for Multinational Enterprises
(see below):
‘The
corporation is a fictitious, abstract legal construct created by statue, given
form by the laws of the nation in which it is incorporated. While the corporate
laws of some nations have attributed the rights of the person to corporations,
the prevailing view of the corporation is as a nexus of contracts with no innate
or natural rights. Evident from this understanding of the corporation is that it
has no place in the development of rules that govern society.’[1]
The Citizens’ Council raised
its concern at the way the OECD and its Members appeared to be placing the
public interest second to private interests. The concerns raised by the
increasing use of ‘contract-laws’ to set conditions for long-term,
large-scale exploitation projects is that these contract-laws codify that
reversal, relegating the social, economic and environmental well-being of whole
regions and in some cases countries to a secondary position vis-à-vis the profit needs of individual corporations or
consortiums.
Widespread opposition to the
perceived supremacy of liberalised multinational activity over national
sovereignty and citizens’ rights has recently led to the abandonment of the
OECD’s proposed Multilateral Agreement on Investment (MAI) and an early New
Round within the WTO. It has also led to attempts by the OECD to address civil
society’s concerns by revising its Guidelines for Multinational Enterprises
and by the European Parliament to develop a Code of Conduct for European Union (EU)
-based multinationals. Yet these efforts are doomed to certain failure, since
they attempt to use voluntary and unenforceable provisions to control practices
that are increasingly being set out in legally binding and enforceable form.
The results of allowing
voluntary systems to substitute binding laws have been demonstrated in a
Canadian study[2]
which concluded that reliance on voluntary compliance is ineffective ‘in
achieving even a marginally acceptable level of compliance or benefit to the
environment.’ According to the World Rainforest Movement and Forests Monitor,
the study ‘supports the findings of an independent survey which found that the
main factors influencing organisations to take action on environmental issues
were compliance with regulations, board of director liability and employees. The
least influential factors were voluntary programmes, interest groups and trade
considerations.’[3]
The failure of voluntary
systems the pet mechanism of many Governments in the 1980s and 1990s has
become increasingly obvious in the past few years. As a result, non-governmental
organisations and other groups representing civil society have made it
increasingly clear that they expect Governments to claw back some of the
regulatory rights they have been shifting to corporations over the years. This
mood so strongly in evidence in the OECD negotiations on a Multilateral
Agreement on Investment and in preparations for a new WTO Round combined
with efforts to rethink the freedom given private companies in their worldwide
operations, provides a timely opportunity to come to grips with the phenomenon
of distorting public law for private ends. It is hoped that a comprehensive
assessment of this trend could also help development and environment NGOs to
understand what they can do to support OECD, European Parliament, Government and
other efforts to rein in corruption and abuses of dominant market position.
The study will consider:
·
the
mechanisms by which public law is used to serve private ends,
·
the
actors who participate in this process, including corporations, home and host
countries and lending institutions,
·
the
effect of these derogations on environmental and social conditions in host
countries, and
·
the
extent of derogations to law established by such private contracts.
We will also consider what
specific actions various actors particularly NGOs could take to deal
with this phenomenon. Case studies of the Chad-Cameroon Oil Export and Pipeline
Project and the Philippine Columbio Financial and Technical Assistance Agreement
are included in the Annex, with a brief overview of other similar cases.
Traditionally,
law is developed through a complex interplay of policy creation, judicial
activitism and doctrinal analysis at several levels, including the local,
national, regional (e.g., European Union, NAFTA) and international levels. Under
relatively recently, legal developments took place through both discrete changes
in positive law rules, at all these levels, and policy modifications giving rise
to a broader legal synthesis. Increasingly, however, the political and economic
relationships among States have become so dense - and at the same time intricate
- that many Governments are no
longer in full control of legal developments even within their own borders.
This trend is the result of
the enormous growth during the past few decades in the political and economic
power to the point of ad hoc sovereignty,
in some cases of multinational enterprises (MNEs), both as independent
actors within home and host countries and as economic partners for (primarily)
developing country Governments. That trend resulted in a great deal of legal
attention being directed to MNE activities, primarily with the aim of
formulating agreements to protect investor firms from the uncertainty inherent
in the nationalisation/expropriation plans of developing country Governments:
‘The
essence of these treaties [to protect foreign investments] is the transformation
of a relationship from one of disequilibrium (private investor sovereign) to
equilibrium (sovereign sovereign).[4]
It is logical to assume that
one aspect of a relationship of equilibrium would be that protection should
apply in both directions; indeed, all the major principles governing
international relations and the rights of citizens lead to that conclusion.[5]
Over the past two decades,
however, a profound sea-change has occurred. With globalisation seriously
eroding State sovereignty, particularly in the economic sphere, MNEs are in the enviable position of having a global
political and economic infrastructure that governments and regional associations
largely lack.
Although
this trend appeared irreversible in the 1980s and early 1990s, a
counter-movement did finally gather steam, with its first victory the
abandonment of the OECD’s Multilateral Agreement on Investment. Civil society
groups are now seeking to ensure that elected officials retain control over
regulatory and economic agendas at the local, national, regional and
international levels. While campaigns throughout the 1960s-1980s tended to
concentrate on issues such as nuclear disarmament, racism and poverty, and were
characterised primarily by direct action demonstrations, sit-ins, marches,
blockades, etc. - the advent of the
Internet has drastically altered that pattern. NGO groups working on
development, environment, human rights, consumer and other issues worldwide have
found their power to influence decision-makers enormously increased by the Net,
which makes inter-group communication fast and cheap,
allows the widest possible dissemination of information and enables
consultation to be worldwide and almost instantaneous. At the same time, the
trend by NGOs to hire specialised and highly trained professionals in addition
to grass-roots activitists has ensured that the information being disseminated
is sophisticated and well-documented.
It thus appears that the
announcement of the end of history was premature. What we will be seeing in the
next decade(s) is a continuing struggle between economic operators (MNEs,
economics affairs, industry and trade ministries, the World Trade Organisation,
the OECD, lending agencies, banks, trade associations, etc.) and representatives
of civil society (ministries of environment, development, social affairs and
health, NGOs working on human rights, development, indigenous peoples,
environment and transparency issues, local citizen groups, etc.) as they attempt
to establish an agenda for governance in an increasingly anarchic world.
I.
The Phenomenon of Contract-Laws
These societal trends
translate in practice into a very serious conflict over how societies are to be
formally - legally - governed. On the one hand is an international coalition of
NGOs representing a multitude of interests, with the coalition members of any
particular campaign shifting in response to the issue being addressed at any one
time. The heterogeneity and multiplicity of these groupings has led to the use
of the shorthand term ‘civil society’. As noted above, these groups are now
permanently linked by the Internet. And while not all groups will participate in
all campaign issues, they are united by an underlying permanency of purpose:
strengthening international environment, human rights and associated treaty
regimes in order to ensure that political agendas and the legal rules that
implement them reflect the needs and wishes of citizens, and not merely of
economic operators.
As a corollary, civil society
groups are working to ensure that such international provisions are transposed
into clear and enforceable national laws ensuring rights to citizens and setting
out obligations for public authorities and economic operators. These should
include the right to information, participation in consultation and standing for
NGOs and citizens before national and international courts.
The result of these steps
would be to set in place a Rule of Law able to withstand the influence and
financial resources of economic operators and their government supporters in
economic affairs, industry and trade ministries, among others. Although 100
jurists would likely provide 101 answers if asked to define the Rule of Law, the
desired end result is generally agreed upon: legal certainty. Certainty provides
protection for citizens by ensuring them of ‘government through fixed,
previously announced rules.’[6]
At the same time as civil
society is insisting on the establishment of strong legal rules to protect
human, environmental, health, labour and consumer rights, however, industry
groups - both sectorally and
through wider associations - are pushing for voluntary, self-regulatory systems
of control over their activities.
It is primarily the
representatives of the chemicals, mining, petrochemicals and pharmaceuticals
industries that are setting the deregulatory agenda: that is, the traditional
heavy industry sectors. These groups are facing the prospect of becoming
industrial dinosaurs in the OECD countries where most of them are based: on the
one hand, they are facing competition from developing country rivals that are
not constrained by First World-style employment, wage, worker health and safety,
and environment laws; on the other hand, within their own countries, smaller and
more flexible competitors are challenging traditional bulk industry products
with innovative - and generally safer and more environmentally friendly
product and process alternatives.
The dinosaurs have responded
to these threats by championing a deregulatory agenda that they believe would
roll back legislative obstacles to their competitiveness and re-secure their
industrial pre-eminence. The route towards that end consists of several steps:
(1)
Insist
on as global a regulatory regime as possible, so that Third World competitors
cannot take advantage of lower standards in their home countries;
(2)
Insist
further, also at global level, that targets and timetables be made as flexible
as possible, in order not to hamper industrial development;
(3)
When
the time comes to transpose international commitments into national law, insist
that they be implemented not through binding hard law, but rather through
framework laws applied via a ‘flexible’ range of instruments, including
voluntary agreements, codes of practice, economic instruments and ‘industry
standards’.
All of
these, it should be noted, do not create rights for citizens or associations:
that is, non-compliance by industry with such instruments cannot be challenged
in the courts. In fact, it is quite difficult to even define non-compliance when
such instruments are used: since different groups may set themselves varying
goals, schedules and means of implementation, it would require extensive
financial and human resources to keep track of what actual obligations have been
agreed to. This also means that information and consultation requirements may be
carried out in a multitude of ways.
In all,
certainty is seriously reduced under a deregulatory, or self-regulatory, legal
agenda. This path leads to Ad Hoc Law
rather than the Rule of Law,
3 . The sting
in the tail
Yet a small but crucial irony
nestles in the heart of this deregulatory universe. Formally, MNEs are asking to
be allowed to function within a flexible legal framework, with the right to
regulate themselves in order to protect their own competitive position and the
economic health of their home States. Informally, however, throughout the world,
these same companies are drawing up contracts that bind developing countriy
governments to provisions that may profoundly affect national human and
environmental rights and are often, in fact, in conflict with existing national
laws or international commitments.
This is an invisible legal
universe. Its terms are hidden from the citizens to whom they apply, because
private contracts need not be made public under normal rules of business
confidentiality. Being private contract provisions, they are not subject to
information disclosure, dissemination or consultation requirements. There is no
possibility of their being challenged by citizens or associations; they not
party to these contracts.
In some cases, such contracts
are adopted as national law after they have been agreed. (This is a requirement
in many former French colonies, where any project involving the Government and a
private company must be approved in law.) In other cases, these contracts exist
entirely at the private level, with only the Government and its industry partner
privy to their contents.
Yet in a very large number of
cases, these project contracts contain binding provisions to the effect that the
project is exempt from environmental, human rights, health and safety, fiscal or
other provisions of national law and, as a consequence, those international
treaties to which the Government is Party. That is, they deprive citizens of
their legal rights by modifying or superseding open, justiciable laws through
confidential contracts that cannot be challenged by non-parties, but
whose provisions are binding: contract-laws.
The effect of allowing private
contracts to derogate from or alter public law in the interest of private ends
is to destroy any chance of a transparent and participatory legal system that
protects the rights of all citizens. To the contrary, such a use of contracts
constitutes continuation by stealth of the attempts in the 1970s and 1980s to
secure the rights of MNEs in their dealings with nationalising governments. This
leaves a huge gap where the rights of citizens should be. As Roger Cotterrell
notes:
‘…it has
typically been only public power which
has been addressed by the concept [of the Rule of Law]. The vast concentrations
of private (economic) power that are characteristic of contemporary advanced
Western societies escape it almost completely. But, if a realistic rather than
formalistic view is taken, public and private power appear increasingly
intertwined, so that the control of monopolistic private powers deserves urgent
consideration in some way as a constitutional issue.’[7]
That is,
the phenomenon of public law being determined by private contract is not
speeding ahead because it has been discussed and approved by the international
and national communities. Rather, its success is due to its existence in a
secret world, safe from public scrutiny and, to a large extent, public
knowledge. Given the recent reactions to OECD and WTO attempts to allow
businesses to set national legal agendas, we can be quite certain that if
contract-law activities were widely understood and the details of their workings
made public, there would be extensive public resistance to this trend.
II.
The Use of Contract-Laws
A perfect example of how
contract-laws work is provided by the Chad-Cameroon Oil Export and Pipeline
Project currently being considered for approval by the World Bank. The project
would exploit oil fields in southern Chad, transporting oil from that landlocked
region to the southern coastal area of Kribi in Cameroon for shipping. The
pipeline used for that transport will run through the entire length of Cameroon,
resulting in extensive environmental and social damage. Yet the private project
contracts agreed between the oil transportation companies and the Chadian and
Cameroonian Governments (known as Conventions of Establishment), which contain
provisions that supersede existing environment and human rights obligations,
have been adopted by both these countries as national laws. This is not an
isolated case; similar procedures have been carried out in other developing
countries (see Annex for case studies).
Since contracts are private,
companies are (and Governments claim to be) entitled to withhold them from
public scrutiny, in the name of business confidentiality. In the case of the
Chad-Cameroon Project, for example, the World Bank refused to provide NGOs with
a copy of the Project contract, on the grounds that it was a private agreement
(despite the fact that the Bank was considering funding the Project, with public
monies). Shell, a 40% shareholder in the original oil Consortium that was to
carry out the Project, refused to show the contract to NGOs on the grounds that
it wasn’t seriously involved with the Project. It suggested that NGO
representatives call Exxon, the project leader, but refused to provide a contact
name and phone number, until threatened with press exposure. Exxon in turn said
it could not give out information about a private contract until NGO
representatives observed that this information would be interestingl to the
European Parliament, which was in the process of drawing up a draft urgency
resolution on the Project. Exxon at that point supplied NGOs with a copy of the
Cameroon Convention of Establishment, which in fact had already been adopted as
a national law in Cameroon but refused to provide the Chad-Consortium
contract on the grounds that it had not yet become national law: that is, it
would still be possible for NGOs to bring its provisions to the attention of
local groups in Chad.
This degree of secrecy in a
case where public funding was being sought, where the contracts in question
would eventually be published in both countries’ Official Journals and
where the World Bank was involved in continuous negotiations about the Project
that included both the Consortium and, supposedly, local and international NGOs
gives some indication of the obstacles facing attempts to obtain details about
the contract-law phenomenon.
Consequently, it is extremely
difficult to assess how widespread the use of such contracts is. That task is
made more complicated by the fact that there are two ways the second rather
subtle - in which private contracts can undermine public law:
(1)
The
contract contains provisions that simply derogate from existing international,
national or regional/local (in the case of permitting and authorisations) legal
obligations;
(2)
The
contract is agreed between a company(ies) and a Government in a country which
does not have specific legislation protecting the environment or human rights,
and laws subsequent adopted in those areas simply take over the provisions of
the contract or are careful not to contain anything that would run counter to
project contracts already agreed.
A large number of such
contracts is already in evidence in the developing world. A thorough study of
the environmental and social effects of foreign investment in the Asia-Pacific
mining sector[8] has found freezing or
weakening of national laws in the Philippines, Indonesia, Papua New Guinea,
Chile, Vietnam and Malaysia. Initial evidence from Africa and Latin America, and
hints from European economies in transition, make it likely that known examples
are merely the tip of the iceberg. As always, the problem is the difficulty of
obtaining project contracts, without which no systematic comparison with
existing or proposed legislation can be made.
The most thoroughly documented
examples of such contracts thus far are the proposed Chad-Cameroon Pipeline
Project in Africa and Financial and Technical Assistance Agreements in the
Philippines (see Annex).
III.
The Effects of Contract-Laws
At the most general level, the
proliferation of contract-laws will make it extremely difficult for national and
international civil society to encourage Governments to ratify and implement
international environment, human rights and other social regimes, strengthen
their domestic legal systems, improve access to justice for their citizens and
engage in greater dissemination of information and wider consultation.
As a direct result of these
obstacles to accountability, contract-laws will hamper
current attempts by the international community to fight corruption and
encourage good governance practices, making it even more difficult for countries
to control their corporate citizens.
This runs directly counter to
the concepts and principles set out in the OECD draft text for a revised Guidelines
for Multinational Enterprises, which state that:
‘Governments
have the right to prescribe the conditions under which multinational enterprises
operate within their jurisdictions, subject to international law’[9]
and that
‘Enterprises
should take fully into account established policies in the countries in which
they operate, and consider the views of other stakeholders…. [and] should
refrain from seeking or accepting exemptions not contemplated in the statutory
or regulatory framework related to environmental, health, safety, labour,
taxation, financial incentives, or other issues.’[10]
On a more practical level,
these contracts make it almost impossible to engage liability for damages
resulting from violations of environment, human rights and other laws. If a
contract derogates from existing law and contains no clear liability provisions,
it is unlikely that either the private party or the Government party would be
willing to accept liability for damages.
Where damage does occur,
dispute settlement is skewed to the detriment of both citizens and developing
country Governments. Contract arbitration procedures often specify that disputes
are to be settled by ICSID (Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States) or the International Chamber of
Commerce. These both operate ‘firmly within the “investor protection”
approach to foreign investment.’[11]
Liability is a particular
problem because developing country Governments in dire need of revenue and
commercial activity often agree to projects that will in the long run damage
their countries. The information thus far available on contract-laws seems to
indicate that they are written by MNEs and presented to host countries as a fait
accompli. Indonesia’s Moh. Sadeli, who was Chairman of the National
Investment Coordinating Board and later Minister of Mines, says the country did
not dare refuse the terms of foreign investment in the 1960s and 1970s:
‘Since we
had no conception about a mining contract we accepted the draft written by the
company as basis for negotiation and only common sense and desire to bag the
first contract were our guidelines.’[12]
Cameroonian Parliamentarians
were quite surprised when NGOs explained the practical implications of the
Chad-Cameroon Project contract which appears to have been written by Exxon -
for their environment and social rights. This points up a further complication
created by the contract-law process: the lessening of transparency among various
Government actors in countries which are already experiencing serious corruption
problems, such as Cameroon.[13]
Contract-laws also create
problems at the interface between law and implementation. The Chad and Cameroon
Conventions of Establishment, for example, waive (for the 25-year duration of
the contract) administrative requirements for a number of activities that
normally require permits. This prevents administrations from periodically
reassessing operating procedures and project impacts to decide whether
adjustments in authorisations are necessary and distorts competition for those
(local) firms that are subject to standard permitting procedures.
2. Environmental, natural
resource and health effects
A 1995
World Bank review of Bank-financed projects from 1992-1995 made the point that:
‘… a key condition for
effective environmental implementation is the extent to which there are clear
and specific environmental deliverables in implementation plans … and
associated environmental clauses in loan agreements and contract documents.’[14]
[emphasis added]
The Bank
warned that even when environmental aspects are mentioned in legal agreements,
‘the majority of these references were too general to guide supervision’.
Bank environment staff saw the ‘translation of EA-derived plans and
measures into language suitable for the legally binding documents’ as a
critical step in improving implementation of environmental protection measures.
Contract-laws
go precisely in the opposite direction. They may permit environmental damage
even to elements of the ecosystem that are supposed to be protected by national
law or international treaty commitments. Damages typical of large projects in
developing countries are listed (non-exhaustively) below.
Large-scale logging and
mineral exploitation projects have severe direct effects on ecosystems and
consequent indirect effects on the communities that depend on them:
Marine effects
Large-scale exploitation
projects frequently give rise to marine effects, either directly or indirectly,
but MNE response to possible marine damage is typically either vague,
inappropriate or both. For the Chad-Cameroon Project, for example, Chadian oil
will be piped through Cameroon to the coastal area of Kribi. The oil Consortium
carrying out the project has developed an oil spill response plan, but an
analysis by the Environmental Law Alliance Worldwide indicates that the Plan
relies on distant, toxic chemical dispersants and unproven methods of in situ
burning.
It is of interest to note that Exxon, the US-based Project leader, would
be required under US law to use mechanical containment and recovery to the
maximum extent possible.[16]
Several mining projects use
marine waters as the immediate or ultimate dumping ground for toxic tailings.
Marine effects have serious
implications for aquatic biodiversity and, as a result, for the tourism and
fishing activities that are of critical importance to many developing country
economies.
Large-scale projects give rise
to toxic wastes and by-products. These may be dumped into surface waters or on
to land, giving rise to both acute and chronic contamination, with effects on
biodiversity, fish and agricultural activities.
In addition to producing
short- and medium-term environmental degradation at site, large-scale projects
give rise to long-term indirect effects through emissions of greenhouse gases
and other pollutants, contributing to climate change and producing
acidification. Shell, for example, has for years been refusing to cap its flares
in the Niger Delta (while at the same time periodically running advertisements
in the Financial Times declaring its commitment to ‘clean air’,
protection of biodiversity and cooperation with local populations and their
needs).
The Chad-Cameroon Oil Export
and Pipeline Project will give rise to substantial emissions. Nonetheless, it
will be funded by the World Bank, which has a stated policy to working towards
reducing emissions of greenhouse gases. In fact, the Bank is reported to have
become the ‘largest public financier’ of carbon dioxide-emitting oil, gas
and coal projects in developing countries.[17]
3. Human rights and social
effects
Large-scale projects
frequently produce serious negative impacts for both the social structures and
rights of communities in project areas. These include:
In addition, economic and
social dislocation may follow from environmental effects, such as boycotts on
fish products, sharp reductions in tourism revenues and wholesale destruction of
ecotourism initiatives.
Impacts such as these, which
destroy traditional ways of life without putting anything in their place, almost
always give rise to social unrest. The classic example of this is the Niger
Delta, where permanent flaring has given rise to 24-hour-a-day light, heat and
particulate matter, and oil leaks have polluterd soil and water and destroyed
traditional agriculture without providing any substitute. The benefits accruing
to the region in exchange have been absolutely minimal: in the midst of vast
oilfields, towns have no more than two or three hours of electricity a day and
local buses only have enough fuel to run once a week.
The unrest
produced by environmental and social damage is well documented. What is less
well documented is the institutionalised human rights violations that may be set
out in confidential contract-laws to deal with such unrest. Contracts may
contain provisions that allow the use of private security forces to ensure
project safety even if international and constitutional human rights guarantees
are violated in the process.
The Chad and Cameroon
Conventions of Establishment, for example, give the Project oil Consortium carte
blanche to act as a paramilitary power in case of opposition to the Project
or its consequences. The Columbio Financial & Technical Assistance Agreement
between the Government of the Philippines and WMC (Western Mining Corporation of
Australia) gives WMC full powers of search and exclusion in a Contract Area
which can easily be extended beyond the original site with under the terms of
the contract. (see Annex)
Finally, from the evidence available thus far, contract-laws almost
always contain significant royalty and tax concessions, to the benefit of the
companies involved and their home countries at the expense of host countries,
thereby exacerbating the socially disruptive effects of projects.
Sectorally, the most active MNEs are
[18]:
·
oil: France, Netherlands, United Kingdom, USA
·
logging: Canada, Finland, Japan, Malaysia
·
pulp industry: Finland, Japan
·
mineral exploitation: Australia, Canada,United
Kingdom, USA
Although it is not possible to
be certain of all the actors involved in writing and agreeing contract-laws, a
few major sectors are clearly in evidence - particularly mining, oil and logging
companies. As a WWF-commissioned report notes:
‘Almost
all countries in the Asia Pacific region are currently undergoing a major
expansion of the minerals sector. In many cases countries have drastically
relaxed controls over mining companies, apparently to encourage further
investment…. Papua New Guinea and Indonesia…allow almost all projects to
operate under special conditions that impose minimal or no regulation and allow
widespread contamination of the environment, and in some cases major social and
human rights impacts…. Indonesia, Chile, Philippines and Papua New Guinea have
provided either general or specific (project by project) exemptions from
existing environmental and other laws.’[19]
In the Philippines, Friends of
the Earth has challenged the 1995 Mining Act because it fails to recognise
Indigenous Peoples’ Rights, which are enshrined in the national Constitution.
The Act would permit foreign corporations to conduct offshore mining, although
this is reserved for national use under the Constitution,[20]
and would allow 100% foreign ownership of mineral property rights, by-passing a
Constitutional requirement for 60% national ownership.[21]
If the case of the
Chad-Cameroon Project is any indication, oil companies are engaging in similar,
extensive distortions of the national and international legal obligations of
host countries. The Conventions of Establishment agreed between the Project Oil
Consortium and the Governments of Chad and Cameroon contain wide-ranging
derogations regarding national environmental and social guarantees (contained in
laws and/or the State Constitution) and administrative procedures, in addition
to suspensions of relevant tax and royalty laws and laws setting out
responsibilities for hydrocarbon transport (see Annex, Part I).
Logging is the third major
sector where such legal maneouvrings are widespread. The Sarawak Land Code, for
example, has been amended several times over the past few years to grant the
Chief Minister powers to eliminate Native Customary Rights.[22]
The most disturbing aspect of
MNE behaviour, however, is the view of commitments as having nothing to do with
existing law. Freeport and Rio Tinto in Indonesia, for example, are operating
copper and gold mines adjacent to the Lorentz national park in Irian Jaya, which
has been nominated as a World Heritage
Site. In response to a report by WWF and IUCN concerning the effects of these
activities on this protected area of mangroves and cloud and lowland forest,
Freeport stated:
‘It is the
clear policy of Freeport and all of its affiliates to operate at all times in
compliance with Indonesian laws and regulations. However, should these
laws and regulations permit such activity in the future, we cannot rule
out the possibility that we might undertake it.’[23]
[emphasis added]
Similarly, Exxon’s website
sets out the company’s commitment to comply with all ‘applicable’ laws
a commitment it has neatly sidestepped in Chad and Cameroon by drawing up
contracts with the host country Governments whose provisions supersede those of
a number of national laws, which thereby become ‘inapplicable’
(see Annex, Part I).
Contract-laws emphasise the
use of ‘industry standards’ or ‘international standards’ to protect the
environment, in particular. These standards are generally vaguely worded and
end-of-pipe - if not end-of-damage in what they require and are always
voluntary, with no sanction for non-compliance.
The extensive use of
contract-laws has implications for MNE home countries as well as host countries
and will in the long run affect the ability of the international community to
govern business behaviour, both through international treaty regimes or in
frameworks such as the OECD or WTO.
Host countries, primarily
situated in the developing world, are of course the main victims of these
private ‘public’ laws. Yet the governments of host countries often actively
assist companies to institute laws and/or derogations to laws that will worsen
their social and environmental conditions. In some cases, this is the result of
poverty. Chad, for example, has been keen to have the Chad-Cameroon Oil Export
Project approved because the country is resource-poor and urgently in need of
revenue. In other cases, host countries welcome large-scale projects for the
political support they expect to receive as a consequence. Cameroon, for instance, will earn almost nothing from the
Chad-Cameroon Project, but its Government hopes that its support for Exxon will
ensure it the political backing of the United States Government.[24]
Some contract-law approvals simply reflect old-fashioned domestic political
corruption: for example, logging in Indonesia and oil exploitation in Burma,
among others.
Host country Governments are
often partners in MNE large-scale projects. This is the case for both Chad and
Cameroon in the Chad-Cameroon Oil Export Project, where the Governments are
parties to contract-laws in two different roles: first as Government partners,
and secondly as minority partners in the (mainly oil company) Oil Transportation
Companies that are co-party to the contract-laws. This is not at all uncommon in
MNE contracts, and the conflict of interest involved has serious consequences
for the Government’s ability to monitor and enforce environmental and social
protection for local populations.
The increasing role of
developing country MNEs in large-scale projects is also of concern. Malaysian
logging companies, for example, have in recent years rapidly expanded their
operations to at least 16 other countries.[25]
While the Malaysian Government has publicly recognised that ‘its
transnationals have a responsibility to behave within the framework of local
legislation in the host country’,[26]
Malaysia’s domestic lack of control over its logging companies and the
close ties between logging interests and some members of Government make
effective control of Malaysian logging activities in third countries unlikely.
Malaysian oil company
Petronas, for its part, is considering becoming part of the Chad-Cameroon Oil
Export Project Consortium, whose environmental and social failings have been
widely publicised by international and local NGOs.
Home countries of
major-project MNEs would at first sight appear unaffected by the widespread use
of contract-laws in third countries, but this is not in fact the case. Martin
Khor reports that at a 1999 seminar on the WTO New Round, former GATT head
Arthur Dunkel and OECD chief Stanley Johnston expressed concern that the narrow
commercial interests of large companies are dictating the trade policies of
developed countries, pushing developing countries to liberalise before they can
adjust and distorting the agendas of multilateral bodies such as the World Trade
Organisations and the OECD.[27]
Nor will home countries remain
unaffected by the uncertainty introduced into the legal process by large-project
interests. In Spain, for example, the Constitutional Court has overturned a 1997
Supreme Court ruling that declared unconstitutional a 1996 law passed by the
Navarre regional parliament. The regional law allowed changes
to two nature reserves in a zone designated as a special protection area under
the 1979 EU wild birds directive in order to allow work on a dam to proceed.
The dam had previously been declared illegal by Spain's high court
because of its expected severe environmental impacts.[28]
Large-project domination of the political agenda will inevitably affect courts
in the long run.
Ironically, while companies
are quietly and in camera altering national laws to suit their project
objectives, multinational regulating bodies are engaged in a whirl of activity
intended to meet the growing insistence by the public that companies be required
to make their activities more transparent and accountable to both governments
and citizens.
The focus for this activity at
present is the OECD revision of its Guidelines for Multinational Entreprises.
In their latest (March 2000) draft, the Guidelines state that MNEs have
an important role to play in promoting sustainable development and that OECD
Members aim to encourage the positive contributions that MNEs could make to
‘economic, environmental and social progress and to minimise the difficuulties
to which their various operations may give rise.’[29]
The draft text specifies that
MNEs are subject to the laws of the countries in which they are located and
operate and should refrain from seeking exemptions to laws in force.
Its section on Environment
states that:
‘Enterprises
should, within the framework of laws, regulations and administrative practices
in the countries in which they operate, and in consideration of relevant
international agreements, principles, objectives, and standards, take due
account of the need to protect the environment, public health and safety, and
generally to conduct their activities in a manner contributing to the wider
goals of sustainable development.’[30]
The European Parliament (EP)
has also been working on developing a system to curb the worst abuses of MNE
activities in third countries. In February 1999, the Parliament adopted a
resolution calling for a European legal
framework governing multinational companies' operations in third countries.[31]
The resolution also identified ‘best practice’ for use in voluntary codes of
conduct, including links to EU legislation, and called for such best practice to
be considered in granting EU funding for developing country projects. The
resolution, and the report upon which it was based, have led to a great deal of
further discussion.[32]
In addition, the European Commission has
funded the establishment of the EU-wide Institute for Ethical Production and
Consumption in Europe (IEPCE), intended to promote codes of conduct and their
monitoring and verification. The
Institute will be holding discussions with industry, trade unions and NGOs in
every Member State. First meetings
have already been held in Finland, Italy and Germany.[33]
Unfortunately, these OECD and
EU proposals are not binding on either MNEs or their home Governments. The
commentary accompanying the Guidelines observes that ‘self-regulation
and other initiatives in a similar vein, including the Guidelines, should
not…be considered a substitute for effective regulation by governments.’[34]
Yet the inability of Governments to control MNE activities effectively is
universally recognised.
For this reason, binding
restrictions on MNE behaviour are the only means to alter irresponsible
corporate activities. Multilateral regulatory bodies should insist on such
restrictions despite MNE insistence on self-regulation: after all, as the case
studies in this report make clear, MNEs insist on their rights being put on
paper in binding form.
This is
particularly important because the most extensive damage caused by contract-laws
will occur at the interface between multinational and national action, such as
international treaties on human rights and the environment, international
agreements on labour and health and safety protection, and international trade
and economic regimes. The widespread adoption of laws that supersede or modify
existing laws or ensure that new laws are based on confidential contracts rather
than publicly developed treaty obligations makes a mockery of the attempt to
develop a firm international structure within which businesses can carry out
their activities while satisfying the demands of civil society for regulatory
certainty and social, environmental and economic protection.
Requirements should also be
set by UN bodies working together with MNEs. The United Nations Development
Programme (UNDP) and the World Health Organisation (WHO) have entered into
collaboration, both financial and political (the Global Sustainable Development
Facility and the World Alliance for Community Health, respectively), with the
same MNEs whose activities undermine sustainable development and community
health policies in the countries where they work.
The
potential influence of the large lending institutions has routinely been
underplayed by the institutions themselves but could become an important element
in guiding MNE behaviour were it to be applied in a coherent and firm manner, in
a context of certainty. This has been recognised in the European Parliament’s
call that all companies financed out of the EU’s European Development Fund:
‘act
in accordance with the Treaty on European Union in respect of fundamental
rights, failing which such companies would not be entitled to continue to
receive European Union funding, in particular from its instruments for
assistance with investment in third countries.’[35]
Unfortunately,
a similar position with regard to international instruments on fundamental
rights and their national implementing instruments has not been taken up by the
major lending institutions.
The
World Bank, for example, in discussions with NGOs on the Chad-Cameroon Oil
Export Project, has routinely explained that the Bank cannot determine policies
for Governments and major companies. Project leader Exxon, however, has
repeatedly implied[36]
that it would not undertake the project unless World Bank funding was agreed.
Bank funding amounts to only 3% of the project costs, but it appears to be
considered a sign of political approval. That approval, in turn, is expected to
act as the trigger for additional funding: in the case of the Chad-Cameroon
Project, an estimated further 24% from a variety of lending agencies.
The
Mineral Policy Institute notes that:
‘Large
direct influences on investment flows are still exerted by the IMF
[International Monetary Fund], the World Bank and the Chemical Bank (www,1997),
and of overseas aid funding assistance, 4% and 6% was directed to the extractive
industries in 1993 and 1994 respectively.’[37]
Moreover,
the World Bank is relied on by other lenders with no assessment procedures of
their own. The US Ex-Im Bank, for example, which has been approached by Exxon
for Chad-Cameroon-related funding, has told NGOs it would rely on the World Bank
‘s assessment of the Project.
The
World Bank can also wield considerable political influence. The recent statement
by the Bank that the Ok Tedi mine in Papua New Guinea should be closed to avoid
further environmental damage caused the PNG Government to begin immediate
consideration of the issue in a series of wide-ranging consultations.[38]
Unfortunately,
however, this level of responsible behaviour is the exception rather than the
rule for the Bank. The Bank’s undermining of its own climate policy has
already been noted (see above, Environmental effects). In the area of mining,
the Bank and other agencies have ‘acted as a midwife to the rapid expansion of
mining exploration into tropical forests and other fragile ecosystems.’[39]
Other
lenders for large-scale destructive projects include commercial, chartered and
investment banks, private investment companies, institutional investors such as
pension fund managers and insurance companies, brokerage houses and
international export-import credit agencies.[40]
For
the countries of the ACP (African-Caribbean-Pacific), which have special ties to
the European Community through the Lomé agreements, it would be important to
link funding by the European Investment Bank (EIB) and the European Commission
to observance of fundamental rights, as called for by the European
Parliament’s Resolution on a code of conduct. At present, this is not the
case. The EIB, for example, has been considering funding
Cameroon within the context of the Chad-Cameroon Oil Project, despite the
fact that the Cameroonian Government has publicly admitted that the Project will
bring almost no economic benefit to the people of Cameroon and NGOs have
provided clear evidence that Government and company practices are causing harm
to the country’s environment, social structures and human rights, before the
Project has even been approved.
NGOs
NGOs have played a major role
in compiling and disseminating information about the abusive practices of MNEs
carrying out large-scale projects, particularly in developing countries.
NGOs have been particularly active in this respect in the fields of
mining, logging and oil exploitation. Their work has included publicising
violations of laws and policies intended to protect human rights, indigenous
peoples, the environment, worker rights, consumers, health and other social
rights; foreign investment practices that would undermine government attempts to
foster sustainable development; and attempts by MNEs to alter government
development policies through corrupt practices and/or distortions of existing
laws.
Unfortunately, however, owing
to the complexity of the phenomenon of contract-laws, NGOs have not yet been
able to provide a full-scale, detailed assessment of how this practice deprives
people of their fundamental political rights, negates national laws intended to
protect human rights and the environment, undermines
State sovereignty and dooms to failure attempts by international decision-makers
and civil society to strengthen the role of international law. The provisions of
MNE contracts remain tucked away in private and therefore confidential
documents, the relevant laws
are not necessarily widely known or their texts available, and NGOs generally
lack the legal expertise in contract law that would facilitate the necessary
assessments. This means that unless certain very basic steps are taken by the
international community, this problem will continue to grow, and attempts to
deal with it will only be possible in a piecemeal, case-by-case manner that
cannot possibly be effective given the scale of the problem.[41]
The first and crucial step that must be taken to address the issue of contract-laws being used to turn entire countries into the equivalent of ‘company towns’ is to break the wall of confidentiality that surrounds these contracts. The United Nations, the OECD, the World Bank, other lending agencies and NGOs should make a coordinated effort formally to request governments and corporations to join in compiling an inventory of the constitutional provisions, national laws and administrative orders governing environmental protection and human rights in all countries. This should be