September 24, 2024
#19: Canceled Land Deals, International Arbitration, and the Limits of the Global Investment Regime – The Case of Tanzania
Drawing on years of ethnographic research that culminated in a recent monograph, Youjin B. Chung chronicles the trajectory of a large-scale agricultural investment in Tanzania, putting a particular focus on shifting state-capital relations and the role of international arbitration when capital and the state fall out with each other. Couched in between are communities, which often suffer from the direct and slow violence emanating from large-scale agricultural investments. The often pro-capital workings of international arbitration endanger the sovereignty of states that such investments have targeted.
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Within academic and activist circles in Tanzania, the case of the EcoEnergy land deal is a well-known saga. As I chronicle in my book, Sweet Deal, Bitter Landscape, the story begins in the mid-2000s when a Swedish investor struck a deal with the Tanzanian government to transform approximately 20,400 hectares of long-settled coastal land to establish a sugarcane plantation. Although the project received enthusiastic support from the highest-ranking government officials and prominent international development agencies and financial institutions, it never came to fruition. After over a decade of negotiations, during which the project progressed in fits and starts, the government revoked the investor’s land title and terminated the project in 2016.
Despite the formal end of the land deal, the project did not cease to exist. People on the ground were still living under the shadow of the project, for instance, under the surveillance of paramilitary forces the company and the district government had deployed to secure the project site boundaries. People were restricted from growing permanent crops or making improvements on the land and their homes. Reports of threat, intimation, physical violence, petty corruption, and confrontation with the paramilitary abounded. Living in this militarized and repressive landscape, individuals and families were forced to renegotiate their everyday survival strategies. They became subject to slow violence in which they remain in place but with diminishing access to resources, an eroding sense of belonging, and increasing pressures on livelihoods.
One of several “inspection checkpoint” signs erected on project site boundaries. Photo by author, June 2016The land deal also lived on in other ways, namely in the international legal sphere behind closed arbitral chambers, unbeknownst to local communities. This exclusionary process of international arbitration and the limits of the global investment regime of which it is a part is the focus of this contribution to this website, which has chronicled several other land-based investments in Tanzania. The following is a revised excerpt from the Conclusion of my book.
In August 2017, less than a year after the project cancellation, EcoEnergy submitted a request for arbitration at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), citing that the United Republic of Tanzania had violated its bilateral investment treaty (BIT) with the Kingdom of Sweden. Represented by the largest business law firm in the Nordic region, EcoEnergy claimed that the company suffered a loss of USD 52 million plus future profits, as well as over ten years of work spent on project development, as a result of acts and omissions of the Tanzanian government [1]. The company alleged that Tanzania’s failure to observe its investment treaty obligations resulted in a “lost opportunity to create approx. 20,000 new rural jobs affecting more than 100,000 people” in the project district [2]. The state’s unilateral termination of the land deal, the company argued in the final paragraph of its white paper, would have far-reaching consequences for the nation: “The most serious long-term damaging effect is the loss of credibility for Tanzania as a country for much needed direct investments into agriculture. If the current GoT [Government of Tanzania’s] attitude toward private investments and the rule of law is not altered, the ability to attract investments for modernizing and industrializing the Tanzanian economy risks being seriously undermined.” [3]. Five years into the proceedings, in April 2022, an ICSID tribunal rendered its decision, or “award” as it is known, finding that Tanzania was in breach of several provisions of its BIT with Sweden. Although only a redacted excerpt of the award is publicly available, the Dar es Salaam-based Citizen has reported that EcoEnergy won a USD 165 million award against the government [4].
EcoEnergy is the first known foreign investor directly implicated in the global farmland rush in Africa to have filed an arbitration claim against the host government. Since the case’s filing in 2017, Tanzania has become a respondent to numerous other international arbitration claims, most of which pertain to foreign land-based investments in the agricultural, mining, and energy sectors. These cases have arisen in connection with the Tanzanian government’s alleged seizure of the investors’ land, the unilateral termination of contracts, and the violation of fair and equitable treatment requirements of BITs, among other reasons [5]. In all cases, foreign corporate entities could file arbitration claims against the government by invoking the investor-state dispute settlement clause, which has become a standard feature of international investment agreements, including the bilateral investment treaty Tanzania and Sweden signed in 1999.
The use of international arbitration, as an alternative, non-judicial dispute resolution mechanism gained momentum in the 1990s with the expansion of neoliberal economic governance. Since then, the number of cases has grown exponentially, with US and European companies driving much of the global arbitration boom. Between 1972 and 1996, ICSID was registering on average 1.5 cases per year, with a total caseload of 38 over this 25-year period. By December 2019, the cumulative number of BIT-based arbitration cases submitted to ICSID and non-ICSID bodies had reached over 1,000 [6] [7] [8].
In the early days of the global land rush, observers had already anticipated a rise in arbitration cases associated with transnational land deals. “Given the haste and lack of forethought going into some of these deals,” one observer warned in 2009, “it seems all too likely that they will give rise to a great deal of arbitration in the years or even decades to come.” [9]. The dispersal of land deal politics to the international legal sphere, specifically ad hoc arbitral tribunals, raises several causes for concern. Who gains and who loses from international arbitration cases linked to canceled land deals? What implications do these cases have, regardless of their outcome, for rural communities such as those in coastal Tanzania?
First, the costs of arbitration proceedings weigh heavily on respondent governments in large legal fees and, in cases where they are found responsible for violating treaty obligations, in millions of dollars in compensation payments to investors. Beyond the EcoEnergy case, Tanzania currently owes at least USD 185 million for a lost arbitration against the Hong Kong-based Standard Chartered Bank involving a dispute over rights under a power purchase agreement [10], and the minimum compensation claim in another recent arbitration case initiated by a UK-based mining company stands at USD 95 million [11]. These costs are bound to have serious consequences for governments in the Global South, adding significant burdens to already constrained national budgets and existing debt service obligations. More critically, they could divert public spending away from much-needed investments in areas such as agrarian reform, land redistribution, and social protection that have the potential to reduce poverty and inequality, advance gender justice, and improve the living standards of millions of rural producers and workers.
Second, as many critics have argued, the global investment regime is fundamentally biased toward corporate interests. Whereas aggrieved foreign investors can initiate arbitration proceedings against their host governments, those governments and the communities impacted by investors’ activities cannot file their complaints in the same tribunals [12] [13] [14]. An exemplary case in point: the hundreds of rural women and men whose lives the EcoEnergy project upended are completely unaware of and uninvolved in the ICSID arbitration.
Although states have the moral obligation to represent the interests of their citizens, they may not be willing or able to effectively argue before the tribunal from the perspectives of local populations [15]. Since investor-state disputes are adjudicated primarily on the basis of investment treaties, their limited scope further prevents consideration of public interest, including the kinds of injustices and rights violations I have hinted at above and elaborate on in my book. International arbitration proceedings also lack transparency by being closed to the public, and it is often only a handful of private law firms, elite arbitrators, and financial consultants based in key arbitration hubs such as Washington, New York, Paris, London, and Singapore that reap financial benefits from the current global investment regime [16]. Ultimately, international arbitration—along with the network of actors, processes, and relationships that sustain it—is both constituted by and constitutive of global capitalism. It is a market-based mechanism that disembeds contemporary land deals from society and abstracts them from the lived and contested landscapes with which they are co-produced.
Third, the protections investors derive from existing investment treaties can fuel more land grabbing and undermine ongoing struggles for land and food sovereignty by local communities and transnational social movements [17]. Although international development organizations and financial institutions have promoted various “best practice” standards for governing land-based investments over the past ten years—including the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries, and Forests in the Context of National Food Security; the Principles for Responsible Investments in Agriculture and Food Systems; and the Guiding Principles on Large-Scale Land Investments in Africa—they remain nonbinding and their implementation woefully limited.
This begs the question of why land investments should be governed through voluntary means, while existing investment treaties between investors and states are legally binding. Perhaps the most problematic aspect of voluntary standards is that they assume large-scale, capital- and energy-intensive agricultural and extractive land deals as necessary and inevitable. By defining land and investment in narrow, economically reductionist terms, current global governance frameworks limit the possibility of imagining and enacting radically different, anti-capitalist ways of organizing society and the environment. As Olivier de Schutter, the former UN special rapporteur on the right to food, has sharply criticized, these existing guidelines provide nothing more than “a checklist of how to destroy the global peasantry responsibly.” [18].
As long as investment treaties remain in force, they give foreign investors the license to file arbitration claims against host governments, independent of whether they themselves have acted in accordance with existing voluntary codes of conduct and national laws. And as long as existing investment guidelines remain voluntary, and unless such guidelines are able to challenge the fundamental power imbalances that underpin the liberal international investment regime, they will continue to shield both investors and states from scrutiny of accountability and justice.
[1] Global Arbitration Review (2017) Tanzania Faces ICSID Claim after Sugar Project Goes Sour. Global Arbitration Review, September 13, 2017. [2] [3] Agro EcoEnergy Tanzania (2017) White Paper on the Bagamoyo EcoEnergy Project in Tanzania. Dar es Salaam: Agro EcoEnergy Tanzania, 19. [4] Ng’hily D (2022) Air Tanzania Plane Seized in the Netherlands. The Citizen, December 1, 2022. Available at: https://www.thecitizen.co.tz/tanzania/news/national/air-tanzania-plane-seized-in-the-netherlands-4039522. [5] ICSID (2020) Cases Database. Available at: https://icsid.worldbank.org/cases/case-database; UNCTAD (2020) Investment Policy Hub. Investment Dispute Settlement Navigator. Available at: https://investmentpolicy.unctad.org/investment-dispute-settlement/country/222/united-republic-of-tanzania. [6] TNI (2013) A Transatlantic Corporate Bill of Rights. The Hague: Transnational Institute. Available at: https://www.tni.org/files/download/ttipinvestment-oct2013.pdf [7] ICSID (2020) The ICSID Caseload Statistics. Issue 2020-2. Washington, D.C.: International Center for Settlements of Investment Disputes. Available at: https://icsid.worldbank.org/sites/default/files/publications/The%20ICSID%20Caseload%20Statistics%20%282020-2%20Edition%29%20ENG.pdf [8] UNCTAD (2019) Fact Sheet on Investor-State Dispute Settlement Cases in 2018. IIA Issue Note. Geneva: United Nations Conference on Trade and Development. Available at: https://investmentpolicy.unctad.org/publications/1202/fact-sheet-on-investor-state-dispute-settlement-cases-in-2018 [9] Peterson LE (2009) Land Deals Could Sow Arbitration Disputes. Kluwer Arbitration Blog. May 30, 2009. Available at: http://arbitrationblog.kluwerarbitration.com/2009/05/30/land-deals-could-sow-arbitration-disputes/. [10] ICSID (2019) Standard Chartered Bank (Hong Kong) Limited v United Republic of Tanzania (ICSID Case No. ARB/15/41). Washington, D.C.: International Center for Settlements of Investment Disputes. Available at: http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C4926/DS12957_En.pdf. [11] UNCTAD (2020) Nachingwea and Others v. Tanzania. Available at: https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/1086/nachingwea-and-others-v-tanzania. [12] [17] TNI (2015) Licensed to Grab: How International Investment Rules Undermine Agrarian Justice. The Hague: Transnational Institute. Available at: https://www.tni.org/files/download/licensed_to_grab.pdf [13] Eberhardt P and Olivet C (2012) Profiting from Injustice: How Law Firms, Arbitrators and Financiers Are Fueling an Investment Arbitration Boom. Brussels and The Hague: Corporate European Observatory and the Transnational Institute. Available at: https://www.tni.org/files/download/profitingfrominjustice.pdf [14] Borras Jr. SM, Mills EN, Seufert P et al. (2019) Transnational Land Investment Web: Land grabs, TNCs, and the Challenge of Global Governance. Globalizations 17 (4): 608–628. DOI: 10.1080/14747731.2019.1669384. [15] [16] Cotula L and Schröder M. (2017) Community Perspectives in Investor-State Arbitration. London: International Institute for Environment and Development (IIED). Available at: https://www.iied.org/sites/default/files/pdfs/migrate/12603IIED.pdf [18] De Schutter O (2011) How Not to Think of Land-Grabbing: Three Critiques of Large-Scale Investments in Farmland. Journal of Peasant Studies 38(2): 249–79.