Tag Archives: Indonesia

International Corporate Liability

The government of Singapore last week was considering legal action against two Singapore-based companies for operations in neighboring Indonesia. The government of Singapore believes that the two companies, Asia Pacific Resources International and Sinar Mas, which are both headquartered in Singapore but have Indonesian owners, are engaged in slash and burn techniques to clear land in Indonesia for use as palm oil plantations. The use of slash and burn techniques has generated considerable pollution, which has drifted into Singapore creating a thick haze and forcing the government to issue several health warnings for poor air quality. The government has indicated that the warnings could remain in place for weeks.

The recent developments provide a classic example of the problem of externalities. Because the costs resulting from the pollution associated with slash and burn techniques are displaced out of Indonesia, there is little incentive for the Indonesian government to address the situation. Further, because the cost of the pollution is not priced into the operations of the companies themselves, the companies have no incentive to curtail their activities. Rather, the costs are borne by the people of Singapore, who must endure poor air quality (and associated health problems).

In this case, the government of Singapore has some resource, because two of the companies engaged in the polluting activities are based in Singapore. But there are at least 30 other companies engaged in similar activities in Indonesia over which Singapore has little influence. And it’s not entirely clear on what grounds the two companies will be charged.

The land is being cleared for the production of palm oil, which historically has been used as edible oil in the region. But increasing demand for biodiesel in the European Union (which mirrors increased demand for ethanol in the United States) has led to sharp increases in palm oil production in southeast Asia. Ironically, the increased pollution in Singapore is thus driven, at least in part, by efforts to reduce air pollution in Europe.

What do you think? Should multinational corporations face liability in one country for their operations in another? What are the implications for such a position? Could you envision an American company being sued in foreign courts for operations in the United States? Are there any limits to this sort of liability? Take the poll or leave a comment below and let us know what you think.

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The South China Sea Arms Race

The Financial Times last week carried a story discussing the increasing level of arms purchases by several Southeast Asian states. According to the Stockholm International Peace Research Institute, Singapore recently placed an order for two new submarines and twelve fighter jets to supplement previous deliveries which included six frigates and 32 fighter aircraft. All told, between 2005 and 2009, Singapore’s spending on arms imports increased 146 percent. Not to be outdone, Indonesia increased its spending by 84 percent, and Malaysia increased its spending by 722 percent (and no, that’s not a typo).Vietnam and Thailand have also announced intensions to increase military spending.

Though many have not publically stated the reason for the increases, most observers point to growing tensions over disputed territories in the South China Sea and dramatic increases in Chinese military spending as the primary causes.

The current South China Sea arms race provides a classic example of the security dilemma [glossary], in international relations. From the perspective of each individual actor, the rational course of action is to increase defense spending in order to facilitate greater security. However, the increase in the armament level of one state leads neighboring states to feel less secure. They therefore increase their own defense spending, leading to a regional arms race. The end result is that, while pursuing rational actions intended to increase their own security individually, all states wind up feeling less secure than they would have felt absent the increase in total military spending.

Five Stories You Might Have Missed

There have been several interesting developments in European politics over the past few days. Final results were released Saturday from the Irish referendum on the Lisbon Treaty. The Irish approved the treaty by a wide margin (with 67.1% of voters in favor) after defeating the treaty in June 2008 by a 53.4 percent majority. Ireland’s approval of the treaty represents an important step forward in approving a restructuring of the European Union; a restructuring that would expand the influence of the European Parliament, establish a full-time presidency for the EU (a position for which former British Prime Minister Tony Blair may be tapped), and limit the ability of national governments to veto EU legislation in certain areas. But despite the approval by Irish voters, Czech President Vaclav Klaus tempered expectations, stating that he may delay signing the treaty until a Czech appeals court can review the treaty and assess its implications for Czech sovereignty.

Two important elections also took place recently. In Germany, Angela Merkel won reelection as Germany’s Chancellor. The victory of her center-right coalition promises to continue her emphasis on greater openness for the German economy. Preliminary results from Greek elections on Sunday suggest that the Socialists will soundly defeat the ruling New Democracy party, possibly securing a legislative majority in the national parliament. The contradictory results suggest an interesting restructuring of European politics.

In news from outside of the European Union last week:

1. Government ministers at the annual meeting of the International Monetary Fund in Turkey this week rejected warnings by the banking sector that new financial regulations could undermine economic growth. Representatives from the United States, Italy, and the United Kingdom all rejected claims by the global bankers association that regulatory overkill could undermine global economic growth and result in the creation of fewer jobs. But despite apparent agreement on the need for new financial regulations, considerable debate over the exact nature and structure of those regulations remains, and an agreement on the details appears to be a ways off.

2. The International Olympic Committee granted Rio de Janeiro the right to host the 2016 Olympic Games on Friday, making Rio the first South American city to host the Olympics. A last minute visit by President Barack Obama to Copenhagen was unable to convince the IOC to grant the games to Chicago, which was also bidding to host. Several observers have raised concerns that Obama’s unsuccessful campaign to win the games may undermine his ability to deliver on health care reform and foreign policy objectives.

3. A massive earthquake in Indonesia resulted in the deaths of an estimated 1,100 people last week. The tragedy follows a tsunami in the South Pacific that killed more than 100 people. Concerns that another, larger quake could strike soon were also raised on Saturday. International aid campaigns have begun delivering supplies to the region, but the widespread devastation of government facilities in the region could hamper aid efforts.

4. The President of Burkina Faso has been dispatched to meet with the military rulers of Guinea to address the emerging crisis in the country. More than 100 people have been killed in Guinea in the past week, as the county’s military government has moved to quash opposition protests. On Thursday, Cellou Dalein Diallo, former prime minister and current opposition leader, was forced to flee the country, as Captain Moussa Dadis Camara, who came to power as the country’s leader in a December coup, has attempted to solidify his hold on power.

5. On Sunday, the government of Iran agreed to permit International Atomic Energy Agency inspectors to visit a secret uranium enrichment facility made public by the United States last week. The discovery of the site led the Russian government to concede the possibility of United Nations sanctions on the Iranian government—a proposal which both Russia and China have long opposed. The Iranian decision comes ahead of scheduled six-party talks, involving the United States, Russia, France, China, Britain, Germany, and Iran, at the end of the month.

Five Stories You Might Have Missed

The U.S. political scene this week was dominated by coverage of Sonia Sotomayor’s confirmation hearings in the Senate. After the hearings, Sotomayor appears to be headed for an easy confirmation to the U.S. Supreme Court, a fact conceded by Republican Senator Lindsay Graham on the first day of the hearings.

Also on the domestic political scene, the battle over President Barack Obama’s proposed health care reform heated up this week, with both sides spending increasingly large sums of money on television advertising. So far, Obama has been content to allow Congressional Democrats to lead the reform effort, but that strategy appears to be in danger after several moderate Democrats expressed hesitation over the bill introduced in the House last week.

In news from outside the United States last week:

1. A suicide bomb attack in Jakarta, Indonesia, killed 9 people and injured more than 50 on Friday. Although no group has yet claimed responsibility for the bombing, the police investigation is focusing on Jemaah Islamiyah, a terrorist group with ties to al Qaeda. The group was responsible for a series of attacks between 2002 and 2005, including the 2002 Bali bombings, which killed more than 200 people.

2. The standoff between President Manuel Zelaya and the leaders of the military coup in Honduras remains unresolved. On Friday, Zelaya attempted to return to Honduras, only to be denied entry. He is currently in Nicaragua. Meanwhile, Venezuelan President Hugo Chávez, a close ally of Zelaya, has become increasingly vocal in his condemnation of the coup, accusing it of being backed by the United States. On Thursday, Chávez said, ““The Honduran army wouldn’t have gone forward without the approval of the state department. I don’t think they told [US president Barack] Obama, but there’s an empire behind Obama.” The de facto government of Honduras has filed a complaint against Venezuela with the United Nations Security Council, claiming that the Chávez government is interfering in its domestic affairs. But the Security Council has so far refused to deal with the complaint.

3. It’s been a month of relatively good economic news out of Zimbabwe. Although efforts at developing a new constitution to deal with the ongoing political standoff between the country’s two leading political parties appear to have stalled, the economy is slowly recovering. Finance Minister Tendai Biti announced on Thursday that the government would have a balanced budget this year, with total spending increasing 39 percent to U.S. $1.39 billion. After peaking at more than 231 million percent last year, inflation has been brought under control and the economy has effectively been dollarized, with foreign currencies used for most transactions. Nevertheless, the government is forecasting a sharp increase in agricultural production and a smaller increase in tourist revenues, which should offset a decline in mining revenue caused by the global economic crisis. Meanwhile, the International Monetary Fund issued a statement describing Zimbabwe as experiencing a “nascent economic recovery” facilitated by “a more liberal economic environment, price stability, increased financial intermediation and grater access to foreign credit lines.”

4. The Russian economy is currently experiencing its worst economic decline since the transition from communism in the early 1990s. According to a Financial Times report issued on Wednesday, the Russian economy contracted by 10.1 percent in the first half of 2009, a much sharper decline than the 7.9 percent forecast by the World Bank just one month ago. Russia’s current economic woes have been caused largely by the sharp decline in global oil prices, which have recovered to $60 per barrel after falling as low as $35 per barrel earlier this year. Russia is also experiencing its own financial crisis, as commercial banks there are bogged down with bad loans. The Russian government may be forced to turn to international markets, barrowing to offset the sharp decline in tax revenues caused by the economic downturn. Based on the new figures, its projected deficit for 2010 could reach as much as 7.5 percent of GDP, a figure far above the 5 percent originally projected. Unemployment has increased from 6 to 10 percent and continues to grow. Meanwhile, many Russians are responding to the economic crisis by returning to the soil, growing their own food on small plots just outside the city.

5. Natalia Estemirova, a human rights activist in Chechnya, was murdered on Wednesday. Estemirova was kidnapped as she left her house in Chechneya on Wednesday morning, and was found shot to death in Ingushetia, a neighboring Russian republic. Protestors fathered in Moscow on news of her murder, and the international community has condemned her death. Russian President Dmitry Medvedev has promised those responsible for Estemirova’s death would be punished, but the Russian human rights community remain skeptical of his reassurances. Estemirova was the third human rights activist killed this year. She was also a close friend of Anna Politkovskaya, the Russian journalist murdered in Moscow in 2006. No one has yet been punished for any of the deaths. Estemirova’s murder, however, raises concerns that the Caucasus region may be headed toward greater instability.