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Monthly Archives: November 2013

Ongoing negotiations over the proposed Transatlantic Trade and Investor Partnership (TTIP) and the Transpacific Partnership (TPP)  have brought to light the democratic impacts of international investment law. Detractors note a lack of awareness at the national level concerning the rights these agreements confer on multinational corporations and the potential restrictions they place on national social, environmental and human rights policy. Proponents stress that prospective economic gains outweigh any concerns and that these agreements must be expedited in order to encourage economic growth.

This debate is relevant to Myanmar as it reforms its investment law and engages with international investment regime. Investment law seeks to insulate investment from unreliable national legal systems and provide recourse to international arbitration for corporations concerning disputes with governments that nationalize their assets. Corporations have reservations about Myanmar’s legal system. They cite the lack of a rule of law as one of the main obstacles to investment. Myanmar will come under tremendous pressure to engage with international investment law. Already, the government has signaled its compliance by signing the New York Convention and by courting bilateral investment treaties.

The problem with international investment law highlighted by social, environmental and human rights advocates is that it has evolved beyond protection against nationalization to encompass regulatory expropriation; it affords corporations standing at investor-state dispute resolution mechanisms (ISDM) to challenge national policies that impact their profits. Commentators such as George MonbiotJoseph Stiglitz and analysts at the unremitting Private Eye (no.1353) decry the regulatory chill that investment law casts over governments. They also note that those negotiating these agreements often have links to the corporations that stand to gain. It is argued that corporations are securing legal powers through an opaque and obscure international process that limits democratic participation and prevents states from regulating and even taxing corporations.

States that sign onto investment treaties sacrifice sovereignty and can be sued independently by corporations. ISDMs have been used to challenge a range of national policies related to human rights and environmental concerns. For example, Veolia is currently attempting to sue the Egyptian government over recent increases in the minimum wage. Vattenfall has filed a case against the German government for restricting the use of nuclear power. Canada’s patent laws that restricted some US pharmaceutical operations have been challenged by drug company Eli Lilly. The Australian government’s restrictions of cigarette advertising, validated by the Australian Supreme Court, have been challenged by Philip Morris for the loss of its intellectual property. Argentina’s freeze on people’s energy and water bills was successfully challenged by international utility companies. El Salvador’s refusal to grant permission for a gold mine on environmental grounds has been challenged by a Canadian company for the loss of its anticipated future profits. Affirmative action programs in South Africa under the Black Economic Empowerment Act have been challenged. There is a growing list of similar arbitration cases that in the past would have required diplomatic intervention at the highest levels. Corporations are no longer held back by international relations or legal notions of sovereign immunity.

There is also controversy over whether international investment law treaties actually encourage enough investment to make this sacrifice of sovereignty worthwhile. South Africa has reevaluated its position and will no longer automatically renew its post apartheid agreements. Brazil has never signed any. Many Latin American states are reneging on or attempting to renegotiate their investment treaties. India and some European states are beginning to demand regulatory protection in the ISDM process. Does this signal a change in the neoliberal economic consensus that underpins the network of international investment treaties?

Myanmar has shown some foresight in its investment law by laying out regulatory conditions protecting its policy making ability. The law sets out the permitted activities for foreign investors and introduces regulations on applying for an investment license, the use of land, transfer of shares, remittance of foreign exchange and the taking of security on land and buildings. Myanmar has plentiful natural resources that attract investment and should be able to promote sustainable development and human rights without dissuading foreign corporations. It remains to be seen whether these restrictions will be utilized to protect national social, environmental and human rights policy making space. Even if the government does assert its regulatory powers will its international investment commitments allow foreign investors to challenge and overrule future policy designed to protect these fundamental concerns?

Opportunity is in the air as Yangon’s hotels bustle with foreign investors eager to stake their claim in the coming economic boom. Myanmar is a country rich in resources emerging from isolation through political, economic and legal reform. In a bid to encourage investment, the government has enacted a Foreign Investment Law (FIL) to replace the failed 1988 version. But insufficient attention has been paid to the emerging legal regime’s impact on the ability of the government to regulate sustainable development. Effective law reform requires a corresponding political and cultural shift in Myanmar.

After all, this is not the first time the government of Myanmar has attempted economic liberalization. The reforms in 1988 ushered in an era that demonstrated that economic liberalization can exacerbate environmental and human rights violations. The previous reform hinged on joint ventures with Myanmar’s economic holdings corporations. These were run by inexperienced military men keen to exploit their connections with local businessmen and those from neighboring states.

The result has been crony capitalism characterized by thirty years of corruption, ethnic conflict, human rights abuses, environmental degradation and little overall improvement in the lives of citizens. Any economic growth was squandered, for example, by spending forty percent of GDP on the military with less than one percent on education. The entire pattern of exploitative development pursued has been condemned in a plethora of reports from civil society. Development became just another excuse to confiscate land, displace communities and enrich military commanders. Foreign investors have been accused of complicity.

The English translation of the new Foreign Investment Law – peddled at many Yangon traffic lights – is a 22 page document that regulates foreign investment and improves upon the previous law. On paper, the new law enables the government to curb foreign investment harmful to development. For example, investment in businesses that use hazardous chemicals or activities that can affect public health, “cause damage to the natural environment and ecosystem” or cause great effect on the conditions of security, economic, environmental and social interest of the Union and citizens must be submitted to the Myanmar Parliament before a permit is granted.

Yet this is the dilemma for human rights and environmental activists – the government of Myanmar has the final responsibility to regulate foreign investment and it has consistently proven itself unwilling and unable to do so. It is dependent on foreign investment. Can the Myanmar government be trusted to apply its own laws in the pursuit of sustainable development and human rights or will it engage in a race to the bottom, encouraging natural resource exploitation and a low skill low wage export economy as it has done in the past?

In a country infamous for endemic corruption and the absence of the rule of law, foreign investors need to proceed cautiously. There are myriad voluntary international legal standards available to investors. Yet the majority of investment in Myanmar has been badly handled and associated with top-down development policy, corruption and complicity with Myanmar in human rights abuses. Popular opposition to this type of investment is mounting and having an impact in Myanmar, with at least two major projects temporarily halted due to local opposition and instability.

Foreign investors want stability. Conflict in many resource rich areas means uncertainty. Western investors will push for bilateral investment treaties that protect their interests against expropriation and the application of performance requirements by Myanmar. Yet these can be tools to promote human rights and the environment. What constitutes these terms must be clearly defined. Does expropriation mean nationalization of assets or does it include unforeseen regulation, or affirmative action programs to promote local development that reduces profits? Does the transfer of clean technology constitute a performance requirement? Many treaties allow investors to challenge these policies through international arbitration.

What is apparent is that it is no longer 1988 and foreign investment must contribute to human rights development in Myanmar, where health and education standards rank among the lowest in the region. The government must strike a balance between regulation and discouraging investment. The new FIL is unclear on dispute resolution in these matters.

The FIL has the potential to curb the worst exigencies associated with foreign investment. This requires a government willing to regulate, not one seeking only to ensure lucrative retirement packages for government officials as local partners to foreign investors. Privatization and deregulation can insulate the business activity of these elites from popular scrutiny. If poorly regulated, the sudden inflow of investment may continue the trajectory that enriched the well-connected at a cost of extreme inequality, the destruction of traditional livelihoods, environmental damage, instability and conflict. This will scare away long term, sustainable investment just as it has over the last three decades.

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