You may not have heard of the area of international law known as Investor-State Dispute Settlement (ISDS), through which private corporations are able to sue governments that implement legislation which constrains their profits. But this private parallel legal infrastructure is one of the greatest threats to progressive governments all over the world.
If, say, a government attempted to force an international fossil fuel company to clean up after an oil spill, or introduced measures to disincentivise smoking, those governments could be sued by the fossil fuel and tobacco industries respectively. And this is exactly what happened in the cases of Chevron vs Ecuador, and Philip Morris vs Australia.
ISDS provisions are written into hundreds of bilateral investment treaties (BITs) agreed between states, often on highly unequal terms. Wealthy states, home to powerful multinational corporations, have worked outside of the multilateral system to agree these treaties, pushing less powerful countries to agree to the inclusion of ISDS provisions if they want access to markets in the rich world.
This system of divide and rule has been disastrous for the global South. BITs include all sorts of regressive elements, from measures that enforce the intellectual property rights of powerful corporations, to rules that prevent states from regulating financial flows.
But no area of international trade is more dystopian than ISDS law. Just ask The Economist, which wrote:
If you wanted to convince the public that international trade agreements are a way to let multinational companies get rich at the expense of ordinary people, this is what you would do: give foreign firms a special right to apply to a secretive tribunal of highly paid corporate lawyers for compensation whenever a government passes a law to, say, discourage smoking, protect the environment or prevent a nuclear catastrophe. Yet that is precisely what thousands of trade and investment treaties over the past half century have done.
Right now, all over the world, there are 390 active ISDS cases — including Honduras Próspera vs Honduras.
Honduras Próspera is a US company started by a group of extreme libertarians, backed by billionaire Peter Thiel and former World Bank chief economist Paul Romer. The idea was simple. The group would establish a private government on the Honduran island of Roatan, allowing them to implement a libertarian free-market utopia — the success of which, they hoped, would undermine big government everywhere.
The regulatory architecture that has facilitated the project is the subject of Quinn Slobodian’s excellent book Crack Up Capitalism — an in-depth history of special economic zones (SEZ).
SEZs come in all shapes and sizes, but they are based on a similar logic. Governments create quasi-autonomous areas within the states they govern, able to implement tax and regulatory policies different to those that apply in the rest of the country.
Governments often parcel up their sovereignty in this way in the hope that doing so will attract inward investment and create jobs, while preserving existing tax and regulation in the rest of the economy. The Chinese state has, for example, created dozens of special economic areas of many different kinds to attract Western multinationals without threatening the state’s dominance over the domestic economy.
But, as Slobodian points out, for billionaires like Thiel, the appeal of the SEZ is slightly different. If SEZs could be established all over the world, complete with low taxes and corporate-friendly regulation, investment could be sucked out of social democratic states and into these free market paradises.
The zone is, in other words, a powerful disciplining tool that can be used to bludgeon states into adopting neoliberal policies.
Thiel and others sought to apply this logic to the tourist hotspot of Roatan in Honduras. After a US-backed coup in 2009, the Honduran government passed a 2013 law establishing special economic zones, known by their Spanish acronym ZEDEs. This law allowed for the creation of autonomous areas within the territory of Honduras, complete with their own political and judicial systems, low taxes and business-friendly regulation.
The ZEDEs sparked outrage and protest, so the government made sure that their introduction was embedded within binding international agreements that would expose any future government that attempted to repeal them to legal action. Fast forward ten years, and that is exactly what has happened.
In 2021, Hondurans elected Xiomara Castro the country’s first female president. Castro was the candidate of the left-wing LIBRE party and ran a campaign pledging to fight corruption of the kind that had plagued previous right-wing governments, and to promote inclusive development.
Castro kept her promise to repeal the ZEDE laws that allowed Honduras Próspera to establish its private libertarian city-state on the island of Roatan. Congress unanimously agreed that the ZEDEs represented a breach of Honduras’ sovereignty.
Thiel and his band of libertarian ideologues weren’t going to go down without a fight. Honduras Próspera launched an $11 billion ISDS case against the government of Honduras, claiming that its repeal of the ZEDE laws violated the terms of existing international treaties. $11 billion represents about two-thirds of the government’s annual budget.
Honduras Próspera’s case has been roundly condemned all over the world. Elizabeth Warren and thirty-three other Democratic representatives wrote a letter denouncing the proceedings and calling for the elimination of ISDSs. The US magazine The Atlantic described the case as ‘neocolonial’.
Despite this condemnation, the case has not made international headlines. With the ISDS system so rigged in favour of wealthy nations and powerful corporations, Castro’s government faces a difficult road ahead.
In this context, the global political network Progressive International (PI) launched a campaign this month to support the Honduran government in its fight against Próspera. PI sent a delegation to Honduras to consult with the government and kick off its Honduras Resiste campaign against the ZEDEs laws and the ISDS case.
Following consultation with the government, experts, citizens, and civil society organizations, PI has denounced the ZEDEs as a form of ‘corporate colonialism’ and condemned Honduras Próspera’s ISDS case. Such cases, according to PI, represent a threat to ‘all peoples of the global South who seek to challenge corporate colonialism through democratic means’.
Decades ago, Ghana’s independence leader Kwame Nkrumah pointed out that even after independence, poor countries existed in a state of ‘neocolonialism’: a condition in which a state is ‘in theory, independent and has all the outward trappings of international sovereignty’, but ‘in reality its economic system and thus its political policy is directed from the outside’.
Nkrumah argued that only through international solidarity could the global South hope to resist neocolonialism and secure the economic and political rights of its people. This message is just as relevant today as it was in the 1960s.
Today, socialists all over the world must stand alongside the people of Honduras in their struggle against neoliberalism and neocolonialism. Spread the message and follow the campaign for updates. In the coming months and years, the people of Honduras are going to need our support.