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Why the White House compares ISDS to gunboat diplomacy

 

 

By Felix Holtwell

 

“In fact, early in our history, the U.S. had to deploy ‘gunboat diplomacy,’ or military intervention, to protect private American commercial interests. ISDS [Investor-State Dispute Settlement] is a more peaceful, better way to resolve trade conflicts between countries.” - US White House

 

October 14, 2016 — Links International Journal of Socialist Renewal — Official lack of foresight knows few bounds, and trade appears to be no exception. In the above quote the US government, the White House site to boot, compares ISDS to a new, better form of gunboat diplomacy. They expect this to be an argument in favour of the arbitration system. Besides the communication blunder this entails, it does show an underlying structure to our global economic system. It shows the force necessary to maintain economic hegemony and how economic policy is still made irrespective of those concerned by it.

 

ISDS courts are private courts based on international trade treaties that allow international companies to sue states when they feel they have been unfairly treated by domestic courts. The system has been heavily criticised for being unfairly tilted in favour of multinational corporations.

 

The main target of ISDS claims are countries in the Global South. Venezuela for example was targeted by 40 claims in the last few decades, mainly in regards to expropriation of the oil industry under the Hugo Chavez government. ISDS was even originally conceived to prevent expropriation of foreign capital by recently independent countries in the wake of decolonisation.

 

Gunboat diplomacy was a policy tool used by imperial powers in the 19th and 20th centuries to force their will on weaker powers. The name derives from the warships often used for this purpose. In typical cases Western powers would sail into ports of weaker powers with state-of-the-art warships and threaten them into changing policy.

 

ISDS and gunboat diplomacy are not the same. One is a colonial policy of forcing countries to do the bidding of colonial, often Western powers. The other is an aspect of international law that often serves the purposes of multinational corporations. Similarities crop up easily though. Both were and are primarily aimed at the Global South, and both often serve to impose economic policy from the outside.

 

Fundamentally the almost Freudian slip of the US government in making this comparison shows not the necessity of ISDS, but the force underlying global economic governance. Moreover, it reminds us that institutions used to run our global economic system, such as ISDS, often find their origin in the colonial period, from which a genealogy can be traced back into the present.

 

Violence and blackmail

 

Gunboat diplomacy worked because of force, or the threat of it. Violence was central to it, mostly in the form of highly targeted attacks and threats that forced weaker governments into submission.

 

An important case is the Venezuelan crisis of 1902-1903. In it British, German and Italian warships blockaded and attacked Venezuelan ports. The country had been in varying states of instability since the civil war of 1892. European powers eventually decided to back up their citizens’ properties and their creditors loans by using military force against the government of Cipriano Castro. This started with a blockade, but eventually descended into a bombardment of a Venezuelan fort by the German cruiser SMS Vineta, which resulted in 25 civilian deaths in a nearby town.

 

In 1903 the Venezuelan government eventually agreed to pay back European debts. The Permanent Court of Arbitration in The Hague subsequently decided that the aggressor nations Germany, Britain and Italy should receive preferential payment of their debts because they caused other creditor countries to “benefit from the circumstances created by the military operations”.

 

Debts were paid back by handing the aggressor nations a part of customs income in a range of ports in Venezuela, channelling the collected revenue towards their own creditors.

 

Banana massacre

 

Use of violence by imperial powers, however, was not always direct. The threat of force from great powers could serve to outsource violence to local actors. During the infamous 1928 Banana Massacre the Colombian state mowed down strikers after pressure from the US government.

 

In 1928 around the town of Santa Marta in Colombia a strike erupted over working conditions at the plantations of the US United Fruit Company. The conservative Colombian government had little sympathy for the strikers, but threats of US intervention spurred on the massacre.

 

The local US consulate, in a telegram dated December 6, 1928 questioned Colombian resolve in repressing the strike, and requested an “American warship be granted and that it stand off subject to my [the US consul’s] call.” That same day Colombian soldiers started shooting strikers. Casualty figures are hotly debated but range anywhere between a few dozen to a few thousand.

 

Nuance is paramount here; causality between US actions and those of the Colombian government are hard to make. US pressure was not needed for the Colombian state to repress social movements, it has a lineage of repression flowing from Spanish colonialism to recent president Alvaro Uribe. What it does show is that the threat of force by imperial powers can escalate into actual force being used against non-Western recipients.

 

This “outsourcing” of violence also characterises ISDS. In a case treated in a Buzzfeed investigative report, ISDS claims forced the Indonesian government to let an ecologically doubtful mining project go through. The state in turn unleashed paramilitary police on local inhabitants after they protested.

 

In 1999 Indonesia, transitioning from the Suharto dictatorship, enacted a forestry law that forbade certain mining activities in ecologically-sensitive areas. Multinationals subsequently threatened persecution under ISDS because of breaches of contract.

 

Rather than face billion dollar claims the Indonesian government backed off and self-disciplined its democratically-voted laws. Extraction was allowed to go through in a number of previously restricted sites. After local protests against Australian multinational Newcrest’s activities on one island, paramilitary police was used to repress campaigners. This resulted in the death of one protester and the detention and torture of several others.

 

Again causality is hard, the Indonesian state does not need ISDS to repress its citizens. Foreign pressure does, however, add to existing dynamics of violence and pulls policy away from those directly concerned by it. Furthermore it shows that ISDS claims can have very real, violent results for people in the Global South, and outsources violence to local actors, just as gunboat diplomacy did.

 

The Roosevelt Corollary

 

Fundamental to gunboat diplomacy and ISDS is economic control from without. In 1904, partly in reaction to the Venezuela crisis of 1902-1903, US president Theodore Roosevelt adopted the so-called Roosevelt Corollary to the Monroe doctrine. The Monroe doctrine was originally formulated by US president James Monroe in 1823, and essentially aimed to limit European intervention in the Western hemisphere.

 

In 1904, however, Roosevelt would drastically reform the doctrine in his corollary. He argued that European intervention in the Western hemisphere was stimulated by the excessive debt of Latin American countries, as the Venezuela crisis showed. Therefore the US would function as a guarantor of foreign debt in Latin America and intervene when necessary to secure it. Essentially the US would forcefully take control over Latin American economies when their debts could elicit European intervention in the region, as had happened in the Venezuela case. Or as Roosevelt stated in 1904:

 

Chronic wrongdoing, or an impotence which results in a general loosening of the ties of civilized society, may in America, as elsewhere, ultimately require intervention by some civilized nation, and in the Western Hemisphere the adherence of the United States to the Monroe Doctrine may force the United States, however reluctantly, in flagrant cases of such wrongdoing or impotence, to the exercise of an international police power.

 

Roosevelt immediately put the corollary into practice during an intervention in the Dominican Republic. The country had been unstable since the late 19th century, and was heavily indebted at that time. In December 1904 Roosevelt sent gunboats and troops to the country and in February 1905 Dominican president Morales gave the US control over customs and allowed them to use part of the receipts to pay off foreign debt holders. This happened in a way similar to what Europeans did to Venezuela a few years before. Which in turn built on earlier experiences of exerting economic control over countries like Turkey and Egypt in the 19th century. The actions impressed European bondholders by putting order to “financial chaos”, and prompted British creditors’ calls to intervene in Panama and Guatemala.

 

According to present-day economists Kris Mitchener and Marc Weidenmier the Roosevelt Corollary shows how an imperial hegemon can provide “global public goods”, essentially peace, “sound” financial policy and economic stability. Their underlying argument here is that a correct economic policy can be enforced upon weaker nations by an imperial hegemon and that this will augment prosperity and economic stability.

 

ISDS functions in a similar way to the imperial hegemon of Mitchener and Weidenmier. It also serves to impose what is considered sound economic policy, mainly on countries in the Global South. And instead of gunboats, top law firms execute billion dollar claims when diverging from established economic policy.

 

Gunboat diplomacy and troikas

 

This argument of having to run ostensibly irresponsible economies from the outside, besides its anti-democratic content, is not unusual today. One of the most recent cases is that of Greece where a “troika” of the International Monetary Fund, the European Central Bank and the European Commission imposed punitive austerity measures to repay debts to European credit holders, often in Germany, and restructure the Greek economy.

 

Harvard University’s Jamie Martin traced how the mechanisms for control over the Greek economy have colonial roots. He shows how debt repayments in Egypt from 1876 meant the creation of commissions of Europeans that took control over certain areas of government revenue. When in the early 1920’s the incipient League of Nations faced a debt crisis in Austria, it used similar means as had been imposed on colonial peripheries from Egypt to Santo Domingo. It included harsh austerity imposed by a foreign commission in control of the Austrian economy. Notable was that League officials protested the use of these techniques because they were meant for “uncivilised” colonial countries, not white Austria.

 

These experiences found their way back to the United Nations system after World War II, and with it institutions such as the IMF. A genealogy can thus be traced from colonialism and gunboat diplomacy to modern day global economic governance, from the IMF onto ISDS. What they share is a mentality that good economic policy can be imposed from without, without regard for local wishes. This line of thinking then further camouflages the power interests underlying these interventions with paternalistic narratives of development.

 

In this sense it is not surprising the US government claims shared aspirations between an instrument of colonial control and an arbitration court. Both render the potential for economic self-determination moot, both share a colonial mindset unbecoming of what constitutes a good society, both use force to establish economic control. The slip might have been unintended, but it easily takes on Freudian proportions when placed in the light of the colonial pre-histories of the government making the slip.

 

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