If the people signing the agreement are not democratically elected representatives, then who is agreeing to it? How can opposition to an agreement by politicians be valid but support by politicians be invalid?
No, it's not Tim Worstall, who I've never heard of. There is some old advice about focusing on the logic, not the person. "Corporatist hack"! I work for myself and I am not a professional writer of anything except computer code.
I'm just pointing out the poor logic in the article, which seems really obvious to me. If this is a victory for the people of Slovakia, it's a Pyrrhic victory. They will pay for it.
Here is the worst part: " "That kind of guarantee is not something that members of the public ever get for free".
Actually, this kind of guarantee is exactly what contract law provides for, all the time. You enter into a contract, both parties are locked in. The "rule of law" concept is one of our great achievements and underpins most everything we do.
ISDS is an attempt to extend that guarantee to companies dealing with governments. A government is an unusual party to deal with because they control the law that the other party relies on to enforce the contract, and there is always the nightmare possibility that the government will breach your contract and simply make it legal by changing the law with retrospective effect. Like what happened here.
: "This is a classic case of a government changing its policy, as governments often do, and a company demanding compensation as a result."
Fact check: governments of stable countries almost never make *retrospective* changes, because they completely destroy trust for anyone dealing with the government, domestic or international. They are even reluctant to make retrospective changes to criminal law, on the grounds of natural justice.
The basis for a company demanding compensation is not because of hurt feelings, rather it can only be for a demonstrated breach of contract, which as I said is normal practice, regardless of who the breaching party is: me, you, Donald Trump or the Government of Slovakia.
contract law: if one party breaches the contract, the other side seeks compensation. That's normal for contracts. You enter into a deal with certain assumptions and agreements locked down, and it's not allowed in normal contract law for the more powerful partner in the deal to changes things later without making compensation.
Quoting again: " What this -- and the general theory behind ISDS -- overlooks is that business is by its nature risky; profits are the reward for taking on risks successfully. Corporate sovereignty demands free insurance for foreign investors, guaranteeing that they will not lose out, whatever happens, without actually needing to pay for a formal insurance policy (which is in any case available for those that want such protection)."
I think this statement is mostly correct, but businesses do not expect that anything at all can happen. You can't contract to build a roof made with tiles, and then have the owner decide that at your cost the roof must be made of gold bricks. This promise of fairness is exactly what the idea of ISDS guarantees. The objective is to allow cheaper contracts, ie better value for citizens. It's similar to the Euro: investors no longer need to worry that fringe governments are going to suddenly devalue their currency.
The author of this article accuses the Dutch company of not "taking out insurance" against the risk of the government changing the law.
This is close to being stupid.
How could you do this, if there is nothing to constrain the government from making any changes it wants? I'd love to see the insurance company that could price that risk, it's open ended.
But even if such a policy existed, the Dutch company would do only one thing: recover this new cost through higher charges to the Slovak government, which of course means 'passed on the citizens'.
The Dutch company, and everyone else dealing the Slovakia, didn't until now increase their prices because they expected not to face this risk. But now ...
In future, if this court ruling stands, this risk is horribly real, and future contracts with the Slovakian government will be more expensive, meaning higher charges or higher taxes for Slovakians. There is a cost to allowing free-of-charge breaches of contract, and the cost is borne 100% by the Slovakian people (in future, right now the cost of this particular incident is borne by the shareholders of the Dutch firm). But it's a case of fool me once, fool me twice, a Pyrrhic victory. Overall, there is a sense in this article of conspiracy and outrage, that supra-government arbitration panels are an anti-democratic assault. Actually, they are an attempt to solve a real problem which imposes real costs, so it seems to me. For sure they are not perfect, but neither are they a conspiracy of world government or whatever.
The insurance company sued because the government broke the contract and did not pay compensation. This happens between businesses. It's not fair, and courts frequently award compensation. That's what contracts are: they bind both parties to their agreement; if I agree with your to mow the grass of your front yard for $10, it's not fair if you refuse to pay me until I cut your back yard grass without any extra compensation. If I had known I must cut the backyard, I would have charged more. This issue is not that I make money by cutting your grass, the issue is that when I make a price, I have to know what I need to do. The problem in this case is the Slovak government changed the law to legalise their breach of contract. A tribunal not beholden to the Slovak government awarded compensation, but now this has been thrown out, so the insurance company got ripped off without compensation. It's very short sighted to think this is a good thing. If you can't see why this is a problem, imagine uou were a insurance company bidding for the next tender, now completely exposed to the Slovakian government breaking the contract without any compensation. You won't be quoting $10 to mow the grass the second time. Who pays for this increase in risk? Slovakian citizens.
So, let me see if I understand. The company entered into a contract, and did not take insurance or increases prices against the Slovakian government changing the contract without compensation, because there was a mechanism to stop this risk. Then, the Slovak government broke the contact without compensation, and the mechanism to protect the company has been ruled invalid. It is very lazy not to consider the consequences of this. Companies will either increase their charges to the government, or withdraw, and less competition will also mean the government must pay higher prices. And when we say "the government", we mean the citizens. They are the ones who pay through higher prices to insure against the sovereign risk of dealing with Slovakia, a risk that businesses have now rudely discovered they are not protected against. If you are Slovakian and plan on being alive for more than a couple of years, this is not a good outcome, this is a bad outcome. Avoiding this bad effect is why people created the ISDS concept. Think about it: There is no point relying on national courts to enforce a contract with that national government when the government is superior to the court; the court enforces the law, but the government makes and changes the law, so the government and the company are not equal partners to contracts. The intention of these tribunals is to lower the risk of contracting with unstable governments, and it's now completely obvious why they were created. I don't see what there is to celebrate in this. The tax payers save Eur 22m, but this is basically stolen from the company via a legalised breach of contract. It's a nice little win, but can you really imagine there are no consequences for future contracts?
Techdirt has not posted any stories submitted by tim.
Re:
Re: Re: A very hollow victory
I'm just pointing out the poor logic in the article, which seems really obvious to me. If this is a victory for the people of Slovakia, it's a Pyrrhic victory. They will pay for it.
Here is the worst part:
" "That kind of guarantee is not something that members of the public ever get for free".
Actually, this kind of guarantee is exactly what contract law provides for, all the time. You enter into a contract, both parties are locked in. The "rule of law" concept is one of our great achievements and underpins most everything we do.
ISDS is an attempt to extend that guarantee to companies dealing with governments. A government is an unusual party to deal with because they control the law that the other party relies on to enforce the contract, and there is always the nightmare possibility that the government will breach your contract and simply make it legal by changing the law with retrospective effect. Like what happened here.
: "This is a classic case of a government changing its policy, as governments often do, and a company demanding compensation as a result."
Fact check: governments of stable countries almost never make *retrospective* changes, because they completely destroy trust for anyone dealing with the government, domestic or international. They are even reluctant to make retrospective changes to criminal law, on the grounds of natural justice.
The basis for a company demanding compensation is not because of hurt feelings, rather it can only be for a demonstrated breach of contract, which as I said is normal practice, regardless of who the breaching party is: me, you, Donald Trump or the Government of Slovakia.
contract law: if one party breaches the contract, the other side seeks compensation. That's normal for contracts. You enter into a deal with certain assumptions and agreements locked down, and it's not allowed in normal contract law for the more powerful partner in the deal to changes things later without making compensation.
Quoting again: " What this -- and the general theory behind ISDS -- overlooks is that business is by its nature risky; profits are the reward for taking on risks successfully. Corporate sovereignty demands free insurance for foreign investors, guaranteeing that they will not lose out, whatever happens, without actually needing to pay for a formal insurance policy (which is in any case available for those that want such protection)."
I think this statement is mostly correct, but businesses do not expect that anything at all can happen. You can't contract to build a roof made with tiles, and then have the owner decide that at your cost the roof must be made of gold bricks. This promise of fairness is exactly what the idea of ISDS guarantees. The objective is to allow cheaper contracts, ie better value for citizens. It's similar to the Euro: investors no longer need to worry that fringe governments are going to suddenly devalue their currency.
The author of this article accuses the Dutch company of not "taking out insurance" against the risk of the government changing the law.
This is close to being stupid.
How could you do this, if there is nothing to constrain the government from making any changes it wants? I'd love to see the insurance company that could price that risk, it's open ended.
But even if such a policy existed, the Dutch company would do only one thing: recover this new cost through higher charges to the Slovak government, which of course means 'passed on the citizens'.
The Dutch company, and everyone else dealing the Slovakia, didn't until now increase their prices because they expected not to face this risk. But now ...
In future, if this court ruling stands, this risk is horribly real, and future contracts with the Slovakian government will be more expensive, meaning higher charges or higher taxes for Slovakians. There is a cost to allowing free-of-charge breaches of contract, and the cost is borne 100% by the Slovakian people (in future, right now the cost of this particular incident is borne by the shareholders of the Dutch firm).
But it's a case of fool me once, fool me twice, a Pyrrhic victory.
Overall, there is a sense in this article of conspiracy and outrage, that supra-government arbitration panels are an anti-democratic assault. Actually, they are an attempt to solve a real problem which imposes real costs, so it seems to me. For sure they are not perfect, but neither are they a conspiracy of world government or whatever.
Re: Re:
The problem in this case is the Slovak government changed the law to legalise their breach of contract. A tribunal not beholden to the Slovak government awarded compensation, but now this has been thrown out, so the insurance company got ripped off without compensation. It's very short sighted to think this is a good thing.
If you can't see why this is a problem, imagine uou were a insurance company bidding for the next tender, now completely exposed to the Slovakian government breaking the contract without any compensation. You won't be quoting $10 to mow the grass the second time. Who pays for this increase in risk? Slovakian citizens.
A very hollow victory
It is very lazy not to consider the consequences of this. Companies will either increase their charges to the government, or withdraw, and less competition will also mean the government must pay higher prices. And when we say "the government", we mean the citizens. They are the ones who pay through higher prices to insure against the sovereign risk of dealing with Slovakia, a risk that businesses have now rudely discovered they are not protected against.
If you are Slovakian and plan on being alive for more than a couple of years, this is not a good outcome, this is a bad outcome. Avoiding this bad effect is why people created the ISDS concept.
Think about it: There is no point relying on national courts to enforce a contract with that national government when the government is superior to the court; the court enforces the law, but the government makes and changes the law, so the government and the company are not equal partners to contracts.
The intention of these tribunals is to lower the risk of contracting with unstable governments, and it's now completely obvious why they were created.
I don't see what there is to celebrate in this. The tax payers save Eur 22m, but this is basically stolen from the company via a legalised breach of contract. It's a nice little win, but can you really imagine there are no consequences for future contracts?
Techdirt has not posted any stories submitted by tim.
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