Factum Perspective – Are corporate giants above nation states?
By Sarasi Paranamanna
The vessel, Hippo Spirit carrying Chinese fertilizer from Qingdao Seawin Biotech Group Co. Ltd is still looming around Sri Lankan waters much like the inclement weather these days.
Minister of Agriculture Mahindananda Aluthgamage has stated that Qingdao Seawin has agreed to take back the fertilizer shipment which has caused much contention and to ship a fresh batch of fertilizer, but Qingdao Seawin says they have no knowledge of such an agreement.
The public is hardly able to decipher if it’s a cloak and dagger game the Sri Lanka’s authorities and foreign corporations are playing, with the overwhelming economic and social issues that have already engulfed the country. However, the impact of the conduct of foreign corporations on state institutions and the country’s sovereignty should be reviewed at this juncture as this Hippo Spirit saga demonstrates just how much influence foreign corporations can wield against entities of a sovereign state.
When the National Plant Quarantine Service (NPQS) rejected fertilizer of Qingdao Seawin on the basis that the fertilizer samples were allegedly contaminated with pathogens, it almost sparked a diplomatic row between Sri Lanka and China and two state entities – the NPQS and the People’s Bank immediately felt the repercussions.
The Additional Director of NPQS was served with a Letter of Demand threatening legal action and demanding USD 8 Million and the People’s Bank was blacklisted by China for not honoring the letter of credit in favour of Qingdao Seawin based on the enjoining orders issued by the Commercial High Court of Colombo. Those who are short sighted or even politically motivated could argue that this is a classic international trade dispute.
However the swift actions by the Chinese parties to rap not one, but two state entities is a clear indication of not only the wolf warrior diplomacy tactics of China but also how powerful corporations play gangster with economically hindered countries such as Sri Lanka utilizing their political and economic might.
The Letter of Demand has been served on the Additional Director of NPQS for issuing a report under his signature stating that the fertilizer samples of Qingdao have traces of bacterial species including Erwinia. This is clearly an obstruction of duty of a public official and could also be construed as a threat to other officials to warn them of the consequences if any one dares to throw a spanner in the works of power corporations.
Whilst on the surface it may seem merely a letter of demand, if this impasse between Sri Lankan authorities and Qingdao continues, international arbitration might be a possible resort to resolve the dispute.
International arbitration is an effective tool to address international trade disputes, but there have been instances where it has been misused by powerful corporations to exert pressure on governments and force their way into sovereign nations. One of the most recent cases being the Pac Rim Cayman Case. In Pac Rim Cayman LLC v Republic of El Salvador( ICSID Case No. ARB/09/12) the International Centre for Settlement of Investment Disputes (ICSID) ruled in favour of El Salvador after Pac Rim initiated arbitration proceedings claiming the government’s refusal to grant them gold exploration licenses, caused damages exceeding USD 314 Million.
The licenses had been refused due to Pac Rim not meeting the legal requirements of El Salvador. However Pac Rim was not successful in their claims and had to pay USD 8 Million as legal costs to the El Salvador government. Whilst the said case is a success story of a government emerging as the victor, what Pac Rim effectively attempted was to drown El Salvador with a legal suit of a multi-million dollar claim. Leading up to the arbitration, Pac Rim had lobbied for a change in the National Mining Law even though they had been unsuccessful in influencing the passage of the draft laws through the legislative assembly. After a legal battle of 7 years, El Salvador was able to free itself from the clutches of the Canadian-Australian multi-million dollar company Pac Rim. Highlighting the threat faced by his government, one of the lawyers for the El Salvador government has said, “What was at stake was whether an international company can use the international arbitration system to force a sovereign state to change its laws. Or whether the foreign investor has to respect the laws of the country it has decided to invest in”.
These are timely lessons for Sri Lanka, not to succumb to the pressures of such multi-million corporations even though the current economic situation in the country might not easily pave such a path for Sri Lanka. It has been pointed out that legal instruments such as Investor State Dispute Settlement (ISDS), are utilized and misused by these corporations to legitimize their claims for damages. Javier Echaide, vice president of the Comprehensive Audit Commission of Investment Treaties and Arbitration System (CAITISA) of Ecuador, has pointed out that such pressures effectively place corporations and shareholders of such corporations on an elevated ground than the sovereign nation itself when large companies lobby to change domestic laws and endeavor to ensure their investment is much more higher than what they do in the host country. In fact certain investment treatise even allow these corporations to bring in law suits against host governments if the corporations’ profits do not meet their expectations.
There is also a plethora of cases such as Philip Morris Brands v. Oriental Republic of Uruguay, Lone Pine Resources Inc. v. Government of Canada and Suez v Argentina where governments have been able to successfully defend themselves against the multi million dollar claims of corporations. However the million dollar question is whether Sri Lanka could be successful in such a case with all the economic and geo-political power factors played out in the country at present. In El Salvador, the multi million dollar claim brought against the government by Pac Rim had galvanized the legislative assembly to introduce important social environmental laws such as a complete ban on all metal mining.
However in Sri Lanka with the country’s food security and the entire agriculture sector at stake due to the risk posed by the bacterial species allegedly detected in the Chinese fertilizer, one can only hope that the parliament will also come together to pass legislation to close doors to large corporations from exploiting the vulnerabilities of Sri Lanka. Here again, the risk is that it might be a fool’s hope and one might even call such hope wishful thinking.
(The writer is an Attorney-at-Law and a journalist. She holds an LLM from the University of West London. She has research experience in International Humanitarian Law and International Public Law)
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