Mar 14, 1989

VENEZUELA: WILL "DEBT" RIOTS SIGNAL ANOTHER TURNING POINT?

BY CHAKRAVARTHI RAGHAVAN

AN IFDA SPECIAL FEATURE

GENEVA, MARCH (IFDA)ó At the turn of this century and in final throes of the last, Naval Vessels of Britain, Germany and Italy blockaded and bombarded Venezuela demanding satisfaction of a number of claims of foreigners, including bond defaults.

The action came soon after the first peace conference of Hague (1899) and, at that time, was hailed as assertion and enforcement of the sacred rights to property of foreigners.

In retrospect it proved the starting point of delegitimisation of the hegemonic efforts of Europe and North America to impose, interpret and enforce rights of their citizens in what is now known as the third world.

As pointed out by Charles Lipson, in "standing guard: protecting foreign capital in the nineteenth and twentieth centuries" (Univ. of California Press), within a quarter of century of the naval bombardment of Venezuela, the legitimacy of these norms as well as the right of enforcement came under challenge, and collapsed.

Successive attempts, first under auspices of League of Nations and later of the United Nations, to re-establish 19th century norms throughout the world failed.

Third world countries successively and successfully asserted their sovereign rights and, despite the few successful examples of enforcement through covert operations (Iran, Central America and Chile), these efforts of the north failed.

They culminated in the 1970ís with the charter of rights and duties of states, which may not be a treaty but still provided international legitimacy for third world assertion of sovereign rights and norms.

The 1980's are now witnessing new efforts at creating international norms for property rights of foreigners (TNCS) all over the world, rights which are seen to be threatened, not by old-fashioned "expropriation" of the 19th and early 20th century, but by the leading role of the state in third world economies and the regulatory measures on foreign investment.

The new rules and their enforcement need not only sustained agreement among the western capitalist states, but "significant approval" from a wide number of peripheral states.

Between the inter-war years, the Europeans with Britain in the lead failed to win such approval in the international conferences, with the Latin Americans and East Europeans joining hands to defeat the European combine.

The re-legitimisation of old norms against the new threats (domestic content, export performance, technology licensing conditions, management etc), is being sought through the Uruguay round of multilateral trade negotiations in the new themes of "services", "investment rights" and "intellectual property rights".

Instead of non-viable use of external force or covert operations to install pliable governments, legitimisation of unilateral trade retaliation, outlawed at U.S. instance in GATT, is sought to be revived as part of the new norms.

The enforcement and collection of dues owed to foreigners, as interpreted by them, has already been taken over by the international monetary fund and recently by the World Bank.

Instead of the old-fashioned use of external force (landing of armies or naval blockades and bombardments), the IMF is managing adjustment programmes, and squeeze money out of a debtor-country (for debt-repayment) is done through native rulers with the police powers of the nation state against its own citizenry.

But as the scale of the Venezuelan violence and uprising by the people against the adjustment programmes put in place by a newly elected and highly popular president who had not hid his intentions before taking office, has begun sinking in, there are questions whether Venezuela is again likely to prove the turning point for another unsuccessful effort to establish northern hegemony.

The next few weeks and months will show whether the debtors, by combining, will be able to use the new situation or once again throw away the opportunity through individual efforts.

It will also show whether the third world, more widely represented at the Uruguay round talks than in the inter-war years at league conferences, will join hands to defeat establishment of new norms.

The rights of foreigners, in peace time, to hold property and trade, involving in those days freedom from expropriation by the state, evolved in the 18th and 19th centuries in Europe through a web of bilateral treaties among states reflecting the web of reciprocal interests and relations of their nationals.

Beginning with the "capitulation" treaties of the ottoman empire, and particularly the 1838 Anglo-Turkish convention, and the conversion of East India company's trading and investment rights in India into British crown rule, as well as the two opium wars for the right to trade in China, European norms, without the slightest hint of reciprocity, were asserted hegemonically and established throughout Asia, Africa and Latin America.

Britain as the leading capitalist centre state led the fight for both establishment of these norms in the rest of the world and its enforcement through colonial conquest and gun-boat diplomacy, with the united states accepting the norms and cooperating in enforcing them in the Caribbean and Latin America.

No one questioned these norms, nor waging war or using force (against then prevalent theories of "just war"). Even waging wars for the right to sell opium in china raised no real outcry.

At the 1899 first Hague peace conference, the question of protection of private property passed without any discussion.

But after the Venezuelan bombardment, Argentinaís Luis Drago challenged the use of force, arguing that foreign debts were not a proper cause for war and forcible collections should be outlawed.

He raised this issue at the 1906 Pan American congress, where the U.S. suggested the issue could be taken up at the Hague conference next year.

But even at the 1907 Hague Conference, as in 1899, the issue of protection of property raised little discussion.

Only the enforcement issue came up, and produced a false compromise the so-called porter doctrine: creditors agreed not to collect contract debts if debtors agreed to accept binding arbitration.

This was unacceptable to most of Latin America, and most of them entered major reservations to the treaty.

The result was that the major capitalist states led by Britain were able to sustain an enforceable system of unified rules and publicly accepted norms. What mattered were not the secret opposition but the suppression of the challenge.

But after World War I even this suppression failed.

Throughout the 1920ís, the League of Nations held a series of economic conferences, culminating in an attempt to codify international property laws.

The European powers who called the conferences were attempting to restore the old standards, which in Europe itself had come under a new challenge: the Marxist Revolution in Russia had abolished private property itself, for its own and foreign nationals, and thus the fundamental basis of international private property was challenged.

The efforts of the Europeans and the U.S. to suppress the Soviet Revolution failed, as also the collective efforts of foreign investors to apply sanctions.

The first codification conference called by the League of Nations, at Paris in 1929, quickly boiled down to a fight over compensation standards.

The major capital exporters wanted a clear statement that foreign capital had to be treated according to international minimum standards the league's draft treaty explictly rejected this approach, asking only for "national treatment" or equality between foreign and domestic invetments.

The British led the fight for stronger language at Paris, and got the support of all major European states. But they were consistently defeated by a combination of Latin American and east European states.

The same issues were debated next year at The Hague, with the same results.

These successive inter-war efforts illustrated the decline of the traditional norms and enforcement capacity. The Europeans were neither able to legitimise the old standards nor substitute effective force for enforcement.

After the Second World War, and the emergence of the U.S. as the dominant centre country, with consolidated economic and military power the re-establishment of international property rules seemed assured.

The U.S. forged an international economic system based, in money and finance, on the Bretton Woods institutions.

Side by side it sought to establish the supporting trading system through the Havana charter and the international trade Organisation, and until it came into force through the General Agreement on Tariffs and Trade (GATT).

The London draft for the Havana charter had nothing on investment rights and subsequent U.S. efforts to put them in failed.

At the UN itself, starting from 1952 (at the height of U.S. control of UN), the sovereign rights of states over natural resources began to be asserted and culminated in the 1970ís in the charter of rights and duties of states.

The U.S. efforts to create new international norms has been centered around GATT and the Uruguay round, because it gives the illusion of an international conference with all states having an equal voice. Yet the GATT decision-making process, in "green room" consultations is effectively run, particularly in the 1980ís under the theories of "trade-weight" of states.

The effort to revive 19th century norms in the inter-war years failed, since to legitimisation of old rules required not only agreement of Europeans but also "significant approval from a wide number of peripheral states", Lipson points out.

In the 19th century European diplomatic practice was approval enough. But for re-establishment of traditional norms, truly international conferences were essential.

Yet the outcome of these conferences, where all league members, had an equal vote, accelerated the decline of 19th century norms.

Even with the "trade-weight" decision-making of the green room in GATT, unless significant numbers of major third world economies join and accept these norms, they will not gain legitimacy.

And combined with the U.S. efforts, as enunciated by Mrs Carla Hills, to put the MFA system of trade in textiles into GATT rules itself (instead of only a derogation as now), and the EEC efforts to make discrimination a part of GATT rules of protection and safeguards, the third world may find it has even little advantages in the GATT system itself, leave aside any in legitimising the new norms.