{"id":17304,"date":"2019-07-23T01:22:53","date_gmt":"2019-07-23T01:22:53","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=17304"},"modified":"2019-07-24T04:56:13","modified_gmt":"2019-07-24T04:56:13","slug":"world-bank-ruling-against-pakistan-shows-global-economic-governance-is-broken","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/world-bank-ruling-against-pakistan-shows-global-economic-governance-is-broken\/","title":{"rendered":"World Bank ruling against Pakistan shows global economic governance is broken"},"content":{"rendered":"

Kyla Tienhaara<\/a>, Queen’s University, Ontario<\/a><\/em><\/p>\n

It\u2019s been a rough month for Pakistan\u2019s Prime Minister Imran Khan.<\/p>\n

It started off with the International Monetary Fund approving a US$6 billion dollar loan to the country. The strict conditions<\/a> on the loan meant that instead of expanding the welfare state<\/a>, Khan\u2019s government had to impose \u201cshock therapy<\/a>\u201d austerity measures.<\/p>\n

Unsurprisingly, this resulted in nationwide strikes<\/a>.<\/p>\n

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\nRead more:
\nImran Khan hopes to transform Pakistan but he’ll have far less power than past leaders<\/a>
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\n<\/em><\/p>\n

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Then, less than two weeks later, a secretive World Bank tribunal ordered Pakistan to pay a mining company US$5.8 billion dollars<\/a> \u2014 nearly as much as the IMF loan \u2014 to resolve an eight year-long dispute.<\/p>\n

Why would an arm of the development pillar of the Bretton Woods system<\/a> require a country in crisis to do something that would completely undermine the actions of the financial stability tenets of that same system?<\/p>\n

What does it say about the state of global economic governance? Is it broken?<\/p>\n

<\/div>\n

Protecting corporate profits<\/h2>\n

The International Centre for the Settlement of Investment Disputes<\/a> was established in 1966 as part of the World Bank Group. The centre oversees arbitrations between foreign companies and states in a process known as the investor-state dispute settlement (ISDS).<\/p>\n

ISDS is hugely controversial for a variety of reasons ranging from the secrecy of the hearings<\/a> to the substantial costs<\/a> associated with defending a claim and the ability of corporations to challenge health<\/a> and environmental measures<\/a>.<\/p>\n

The case that cost Pakistan $5.8 billion did not revolve around such measures but rather the decision of a provincial government to backtrack on a sweetheart deal<\/a> that had been offered to a mining firm, allegedly the result of corruption<\/a>. Leaving the merits of the case to one side \u2014 it is difficult to assess the tribunal\u2019s reasoning when the award isn\u2019t public, after all \u2014 let\u2019s take a closer look at the payout.<\/p>\n

According to the mining company \u2014 Tethyan Copper, partially owned by Canada\u2019s Barrick Gold \u2014 it spent US$220 million on exploration activities<\/a> before things went south. One might argue that a fair outcome, if the government was solely to blame, would be for the award to cover these sunk costs. Instead it was more than 25 times that amount. That is because the tribunal chose to award the company \u201clost future profits\u201d from the project.<\/p>\n

No crystal balls<\/h2>\n

Arbitrators don\u2019t have crystal balls. They don\u2019t know what the value of a mineral will be in a year, let alone 30 years. And they are lawyers, not market analysts. So how do they decide how much profit a firm would have made in a hypothetical alternative future?<\/p>\n

The answer is, partially, that they rely on \u201cexperts\u201d brought in by each of the parties to the dispute. These experts provide a best guess for what they think a project is worth. International law scholar Robert Howse calls this \u201cjunk science.\u201d<\/a><\/p>\n

Unsurprisingly, the state\u2019s expert often provides a low-ball estimate for the value of a project and the investor\u2019s expert gives an inflated value. Faced with this discrepancy, arbitrators will often choose to go down the middle <\/a> and pick an arbitrary value. Tethyan Copper had originally sought more than US$11 billion in damages<\/a>, suggesting that the tribunal in this case may have taken this approach.<\/p>\n

When it comes to the calculation of damages, there are very few constraints on arbitrators. As noted in one award<\/a>, a tribunal generally has the freedom to \u201carrive at a figure with which it is comfortable in all the circumstances of the case.\u201d<\/p>\n

Did the arbitrators in this case consider that the owners of Tethyan Copper \u2014Antofogasta of Chile and Barrick Gold \u2014 had long ago written off the project <\/a> and continued to be very profitable<\/a> firms? Did they consider the records of these companies in terms of alleged corruption<\/a> and human rights abuses<\/a> in other countries?<\/p>\n

\"\"<\/a>
Pakistan\u2019s Prime Minister Imran Khan is seen speaking at the World Government Summit in Dubai, United Arab Emirates, in February 2019.<\/span>
\n(AP Photo\/Jon Gambrell)<\/span><\/span><\/figcaption><\/figure>\n

Did they consider that US$5.8 billion is one eighth of Pakistan\u2019s total government budget for 2019\/20? Did they consider that the country is facing an economic crisis? It seems the answer may have been \u201cno\u201d on all counts though, again, we are left guessing about the tribunal\u2019s justifications for its award.<\/p>\n

<\/div>\n

A way out<\/h2>\n

An international process is currently underway to come up with reforms<\/a> to ISDS, and excessive damages awards have been identified as an area of concern for states. A number of countries, most recently South Korea<\/a>, have come to the wise decision that the best way forward is to opt out of ISDS altogether.<\/p>\n

In practice, this means individual states terminating the thousands of investment treaties<\/a> that provide access to arbitration, which can be a difficult and time-consuming process. A preferable approach would be for states to co-ordinate their efforts, for example through a multilateral exit agreement<\/a>.<\/p>\n

Abolishing ISDS won\u2019t solve all of the problems of global economic governance. But it seems a very good place to start.\"The<\/p>\n

Kyla Tienhaara<\/a>, Canada Research Chair in Economy and Environment, Queen’s University, Ontario<\/a><\/em><\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Kyla Tienhaara, Queen’s University, Ontario It\u2019s been a rough month for Pakistan\u2019s Prime Minister Imran Khan. It started off with the International Monetary Fund approving a US$6 billion dollar loan to the country. The strict conditions on the loan meant that instead of expanding the welfare state, Khan\u2019s government had to impose \u201cshock therapy\u201d austerity […]<\/p>\n","protected":false},"author":44,"featured_media":17300,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[6704,6703,3932,1868,6701,6702],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/17304"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=17304"}],"version-history":[{"count":2,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/17304\/revisions"}],"predecessor-version":[{"id":17307,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/17304\/revisions\/17307"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/17300"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=17304"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=17304"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=17304"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}