International Development Strategy

Lord Sikka Excerpts

Thursday 16th December 2021 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I draw attention to two issues that relate to the alleviation of poverty, social justice, human rights, and trade and development. First, the Pandora papers, the Panama papers, the Paradise papers and many others provide abundant evidence of global tax abuses, which deprive countries, especially poorer countries, of vital tax revenues. Those leaks highlight the role of accountants, lawyers and finance experts based in the UK, Crown dependencies and overseas territories, but the Government are yet to investigate, fine or prosecute any of the big accounting firms involved in those abuses. I hope the Minister can tell us whether any prosecutions are in the pipeline and, if not, why not.

The OECD also estimates that African countries lose at least $50 billion in taxes due to corporate tax abuses, which is more than the aid they receive. The Government can help to curb these predatory practices by imposing trade sanctions on tax havens, including Crown dependencies and overseas territories, for facilitating this global looting. They can also embrace transparency by ensuring that country-by-country reporting evidence is made public and by requiring large companies to publish their tax returns. That can again help developing countries.

Secondly, can the Minister please examine the negative impact of stabilisation clauses imposed on poorer countries through foreign direct investment agreements? Many of these are brokered by the Government themselves. The FDI agreements are often between unequals and, in many cases, the corporations are financially and politically more powerful than the host countries. I have seen some agreements that are over 300 pages long and written in dense legal language. Most are not publicly available, as corporations insist on that, making it difficult for anybody in those poorer countries to seek redress for abuses.

Stabilisation clauses are widely used by transnational corporations to manage non-commercial risks by stabilising or freezing the terms and conditions of a project. In effect, the project becomes a state within a state, with its own laws and rules. These clauses generally guarantee for the investors, who are mostly in the western world, that the domestic laws affecting the investment will remain unchanged or frozen during the entire life of the project, which can be 50 to 100 years.

In many cases, such clauses exempt the investing company from local taxes, customs duties and other charges that local industry has to pay. One survey of 88 FDI contracts noted that

“the stabilization clauses in non-OECD countries are more likely than those in OECD countries to limit the application of new social and environmental laws to the investments”.

The clauses either do not allow new laws to apply to the project or force host Governments to compensate investors for compliance with new laws, which might be for a cleaner environment, cleaner water, better wages or better pensions. Corporations are supposed to be compensated by poorer countries.

Stabilisation clauses are usually accompanied by arrangements for arbitration. However, the arbitration is through business panels located in Washington DC, Paris or London, which are empowered to make what are often called “final and irrevocable” decisions. Local people, who have never had sight of these agreements, have to ask foreign panels to adjudicate and they rarely succeed in bringing corporations to book.

One consequence of these arrangements is that local courts, lawyers and institutions of government do not develop the capacity to adjudicate on disputes. The enjoyment of human rights requires the state to develop appropriate regulation, enforcement and investigative systems. It cannot easily tackle discrimination at work, and gender and minority rights, without developing appropriate systems of corporate governance, law enforcement and a capacity to investigate suspect practices. However, the opt-outs guaranteed by stabilisation clauses and supported by the Government do not enable host countries to develop regulatory capacity, or the ability to monitor corporate activity, identify transgressors and meet their human rights obligations.

I ask the Minister to consider including the following items in the government strategy. First, the strategy should ensure that all FDI agreements by UK-based companies are made publicly available. Secondly, all FDI agreements must pass the human rights test. Thirdly, the UK Government must not broker any FDI agreement that constrains the power and right of host Governments to levy taxes and apply new laws to foreign investment.