My Log 742 June 27 2019: Chronicles from my Tenth Decade: 177; Fabled walled city of Dubrovnik caught by infamous mechanism designed to stitch-up deals in favour of investors; caught, like Canada before them, and sued for millions, suckers for the wealthy, just like us

In recent years I have spent quite a bit of time in the fabled walled city of Dubrovnik, on the Adriatic coast of Croatia, a small city of 50,000 or so people, of which something like 500 live inside its medieval walls, and a city that is already choked with tourists every summer.

Perhaps I became too familiar with the city, because I used to tell my resident friends, more as a joke than a criticism, that it is a city of military fortifications and churches, neither of which interests me. So litle do they interest me that I never set foot inside any of the churches through which squads of tourists were marshalled every day, a press of people so intense that they were rationed to half an hour at a time, My question always was: this is a holiday?

Of course that the whole stone site --- construction, buildings, churches, walls and all---  was built in medieval times makes it a very impressive example of human ingenuity and taste, which I suppose is why tourists flock to see it from China, Japan, Korea, and every other known country.  (The Japanese tourists, I can report on the basis of months of observation,  are the most polite and most elegantly and tastefully  dressed, the Chinese more rowdy and exuberant, and the Koreans seem to come somewhere between the two, as Korea does on the map.) 

My especial friend, the one I was visiting, is an Englishwoman, Sheila van Bloemen, (raised in Montreal) who went to live in Dubrovnik in 1973, and, now 90 years of age,  is still living in the same house, overlooking the walls, and above the city’s small harbour. The story of how she came to be there is a saga in itself, and one that I told in a small booklet I wrote while visiting her, but it will have to await a later Chronicle.

Still, of immediate interest is that Dubrovnik, which lies on a piece of flat land at sea level, beneath a towering hill, known to everyone as Srd (pronounced “Surge” to my untrained ear),  is threatened with a development,  against which the residents  have been fighting a rearguard action for 14 years.

Initiated by some international  investors, this development is proposed to occupy a 359-acre piece of flat land just on the other side of Srd, that will have two golf courses, and a gated community of 240 residences, plus 400 apartments, constituting altogether a huge playground for the rich that, the residents discovered in 2010, will be equal in size to the entire city of Dubrovnik, and 20 times bigger than the fabled walled section.

The residents are only too conscious of the fact that the old city’s infrastructure is falling apart, and are outraged that the investors expect the city to finance the entire infrastructure for this vast new project.

Golf courses, especially in this relatively barren landscape, require huge amounts of water, and this project will require three times as much water as Dubrovnik currently needs during the tourist season, when its resources are already over-charged. “This is completely crazy, and unacceptable for us,” says Duro Capor, a resident spokesperson, in a very persuasive video they have put together, of which I recently received a copy, from my friend’s son, Marc van Bloemen, who operates one of the highest-rated small tourist establishments in the old town.

The residents have done everything they could to bring the project to a halt, even organizing a referendum, which voted 85 per cent against the project. Meanwhile, every organ of government at every level, local to national, was supporting the project, having already issued the necessary permits to the investors.  They don’t say so in the video, but this no doubt raises some issues around the subject of corruption, which appears to be endemic throughout what was once Yugoslavia. “So we had to go to the court, to show that this project was bad for Dubrovnik, bad for the environment, and illegal,” says Capor, in the video. “We fought them for two and a half years in the courts, where we in fact won, and had two court judgments in our favour, so they issued judgments killing the permits for the project.”

But, as so often happens in this modern world, the rich and powerful are always organized to snatch victory from the jaws of defeat  (and, as we shall see from the rest of this story no one knows this better than Canadians). “The investors found a legal backdoor”, says Pia Eberhardt, another resident, “and this backdoor is called ISDS”, something that she says “is found in many trade and investment agreements, and with the help of a letter-box company in the Netherlands, the investors are now suing Croatia, claiming $500 million dollars in compensation.

This ISDS is presented in the video as if it is a sinister, half-hidden entity that suddenly springs up to bite them, but in fact it is well-known to Canadians, for the acronym stands for Investor-State Dispute Settlement, and it is one of the most cunning stich-ups created by the world’s wealth-owners to ensure that even when they lose, they win. In fact ISDS first gained international acceptance when Brian Mulroney and his team of so-called negotiators agreed to its inclusion when the original NAFTA was negotiated in the 1980s.  That any government could agree to a clause under which a company could sue a government for prospective losses caused by some government action was one thing about that agreement that particularly left me speechless. That  was the nadir of the Reagan-Thatcher propaganda argument that the governments they headed were the real problem. For me, on the contrary, governments have always seemed like the essential instrument needed if wealth redistribution is ever undertaken. Naturally the wealth-owners of international investment were quick to take advantage of this berserk provision of law.

“As a teacher I try to teach kids about values, about how to be active citizens and to respect the law,” says Capor, “and I cannot understand how something like this can exist, despite all our efforts, despite all our court decisions, and wins, despite the referendum and will of the citizens, now three foreign arbiters will decide, and we will not have a say about what is happening in our future”.

Ms.  Eberhardt says, “ this is just one of 1,000 ISDS cases around the world that we know of, and in many cases corporations use ISDS decisions to bypass decisions by domestic courts and undermine democratic political processes, like in Dubrovnik where people rejected a project, because it would have been in the interests of a tiny elite.”

“As soon as the arbitration claim was submitted, the State issued new permits to the investors which were identical to the permits that had previously been cancelled. And as if this wasn't enough, the investor sued the citizens group, which called itself “Sjd is Ours”,  to prevent our critique of this process, which we called racketeering, and they want an amount that is capable of shutting down our environmental organization.”

Another spokesperson said she thought the arbitration process came because “we were too powerful for them, and they couldn’t imagine any other way to destroy us.”

They conclude by saying, in chorus:: “This has been a 14-year long struggle, but what we want to say is we will never give up. Because what we want to say is “Srd is ours.”

The video ends with a title that says simply,

Time to close the backdoor for corporations. Join the movement to stop ISDS.”

*       *                                                                        *       *

AS A MATTER OF INTEREST I RESEARCHED SOME BACKGROUND ON ISDS, AND FOUND AN ITEM OF SUCH INTEREST TO CANADIANS (ON THE WEB SITE OF THE INTERNATIONAL INSTUTUTE FOR SUSTAINABLE DEVELOPMENT), THAT I THOUGHT I WOULD REPRINT THE WHOLE ITEM, AS FOLLOWS:

“The NAFTA agreement put the famous investor-state-dispute- settlement mechanism on the map. Now its rebirth as the USMCA is taking it off again --- at least between the United States and Canada.

“Bilateral investment treaties with investor–state arbitration provisions have existed since the 1980s. They were not broadly used initially; the first handful of cases went unnoticed. But when companies used NAFTA’s investment chapter to launch the first international arbitrations against Canada (then the United States and Mexico), law firms leaped at the new business opportunities, and investment arbitration took off.

“Today we know of close to 900 arbitrations worldwide—far more than in any other field of public international law. The early NAFTA cases are studied in university programs that did not previously exist.

“When the first NAFTA case in the late 1990s challenged a Canadian government environmental measure, it hit like a bombshell. In the following years, foreign investors would sue the Government of Canada 27 times; 26 of those cases were brought under NAFTA by U.S. investors. These cases challenged a wide range of government actions, such as banning products due to their health and environmental risks and denying permits for environmentally unsound projects.

“But Canada and the United States have just pulled the plug on this practice. Under the new USMCA,  U.S. investors already present in Canada will be allowed to use investment arbitration for another three years. After that, they will have to go back to the good old Canadian courts, like Canadian companies already do. And that is probably about right.

“ ‘But what about Mexico?’ you might ask. Mexico and the U.S. have negotiated an annex that allows investment arbitration to continue, but only in well-defined circumstances. Established investors can only bring claims about expropriation and non-discrimination. They can no longer base allegations on the most worrisome and fluffy concepts like fair and equitable treatment.

“Most interestingly, the U.S.–Mexico dispute resolution annex has brought in a concept at the heart of international law: claimants need to first try to resolve issues in domestic courts and can only afterward bring disputes to the international level.

“NAFTA’s investment chapter did not follow this international rule and allowed investors to bring claims directly to international arbitration, sidestepping local courts altogether. In the new United States–Mexico annex, investors cannot bypass domestic courts. They must try to use local remedies for 30 months. International arbitration then becomes an option if this does not reach a conclusion.

“A few sectors — including oil and gas and some public service sectors— get special treatment. If foreign investors in these sectors have a contract with their host government, they, allowing such, can bring claims based on most investor protections contained in the USMCA, including fair and equitable treatment; this includes oil and gas and some public service sectors. In addition, they are not required to go to domestic courts before initiating arbitration. But even claims from these investors are subject to significant new limitations.

“All in all, Canada comes out of the investment negotiations in a better situation than when it went in, at least with respect to the United States. Its relations with Mexico, on the other hand, will be regulated under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which includes traditional investor–state arbitration.

“How Canada will deal with these different approaches and what path it will adopt in future and ongoing negotiations remains to be seen. But, whatever the context of the overall renegotiations of NAFTA, the outcome of the renegotiations on investment should pave the way for new ideas that can provide food for thought for the Canadian administration in its ongoing or future negotiations. At a time when many countries are overhauling their approach to international investment governance, these changes demonstrate willingness for new thinking.

“The dramatic turnaround on ISDS in the renegotiated NAFTA, the agreement which triggered the explosion of ISDS cases in the late 1990s, is significant. Perhaps it will once again spur a novel approach to international investment governance, but one in which ISDS is no longer the norm or is at least more tightly circumscribed.”

Incidentally, the investors involved in the Dubrovnik case are known as Razor Golf and Leitch, the former of which is owned by Muja Briar and her husband, Israeli investor Aaron Frenkel, who, before initiating their law suit, stated that even after 10 years of effort and expending 130 million Euros they cannot start the project.

“They added:

“Due to total blockage of the project and annulment of permits already issued due to administrative failings of state bodies, we have decided on this action to secure our rights as investors who have been attempting for 10 years to realise this project, while investing over 130 million euros by now. By obeying procedure and striving to reach an agreement, we sent in December of 2016 a letter to the government ahead of the arbitration with an invitation to peaceful resolution of mutual issues, but this did not lead to any specific progress. With the goal of protecting our investment and the project, arbitration was the last, unwanted move we were forced into after complete blockage the project faced, although not due to any failings on the side of the investor,” stated Ivan Kusalić, a procurator with the Razvoj Golf company.

This seems like one story to which my mantra “Wot the hell, wot the hell,” does not apply.