The result has been devastating to say the least. David Aronson’s op-ed in the NY Times last summer details some of the unforeseen damage on the mining industry in the eastern part of the country:

The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones. The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords — especially the glamorous high-tech firms like Apple and Intel that are often the ultimate buyers of these minerals. It’s easier to sidestep Congo than to sort out the complexities of Congolese politics — especially when minerals are readily available from other, safer countries.

While a recent UN report acknowledges some successes of the legislation, it notes that the falling production due to the law has led to “”rising unemployment and worsened poverty among the tens of thousands of people who depend on artisanal mining, with a consequent sharply negative impact for the economies of the affected regions as a whole.” (para. 368)

Indeed, Prof. Laura Seays of Morehouse College, in her recent paper on the effects of the bill, notes that

Local civil society activists engaged in the mining sector estimate that 1-2 million Congolese artisanal miners and those who work in other aspects of the mining sector are currently out of work.  Multiplied by the 5-6 direct dependents that each miner has, section 1502 has inadvertently and directly negatively affected up to 5-12 million Congolese civilians. Many miners cannot feed their children, their children are not in school this year because they cannot pay tuition fees, and those who are ill cannot afford medical treatment.

Eric Kajemba, director of Observatoire Gouvernance et Paix (OGP), a local NGO based out of Bukavu, DRC, believes that while good-intentioned, the law did not take consideration of on-the-ground dynamics. He notes some of the problems of implementation in an interview with Jason Stearns last summer:

No. The motivation behind the law is very good – to impose transparency. But the implementation has been the problem. We are not in a country with a functioning government, you cannot just assume that certification and due diligence can spring up overnight. Plus, there were efforts under way already by other actors to impose transparency; ironically, the Dodd-Frank law slowed these efforts down, as they were financed by the minerals trade.

No, I agree with the law, but it should have been implemented in stages, over two or three years. It was too strict, too abrupt: no tagging, no sale! But there were initiatives like that of the German Federal Institute for Geosciences (BGR) and the International Tin Research Institute (ITRI) – and other initiatives at the local level that may actually have been undermined in the short term by the law.

With the ability to make laws that have such an immense impact on the lives of ordinary Congolese citizens, this issue perhaps highlights the disproportionate power lawmakers in the US wield over people to whom they hold no loyalty, and the deadly costs that individual misjudgement on their part can have on communities thousands of miles across the ocean.

Given the overly simplistic manner in which the issue was framed (“the purpose of this bill is to cut off funding to people who kill people”) in order to garner support amongst the public and Congress it is perhaps not surprising that the provisions turned out so unfit – the requisite measure of meticulousness and caution was simply not applied. a bill with such far-reaching implications deserved a far more comprehensive analysis than was actually committed , including input from all actors involved, particularly representatives for the local communities in the Eastern Congo who were going to feel the brunt of its effects. Indeed, the OGP and the BEST have sent a letter to the SEC recommending just this, in addition to several other prudent measures before the provision properly comes into force.

It remains to be seen whether these efforts will have any substantive effect on the implementation of Section 1502.

Before addressing those arguments, a little background.

What is RPM? RPM is when a manufacturer controls the prices at which distributors sell goods.  Minimum price-fixing is where the manufacturer sets the lowest price at which distributors can resell goods.

Is minimum price-fixing anti-competitive? The lawyer’s response: “it depends.”  Minimum price-fixing has anti-competitive effects when manufacturers or distributors (a) collude to police cartels or (b) exclude competitors by eliminating their ability to compete by lowering prices.  Minimum price-fixing can however have pro-competitive effects when used to help introduce products, encourage distributor promotions, ensure uniform distribution, enhance experience-related products, and reduce free-riding.

How does EU law approach minimum price-fixing? EU law is not a friendly venue for minimum price-fixing.  Article 101(1)(a) of the Treaty on the Functioning of the European Union (“TFEU”) broadly forbids price-fixing.  The EU Block Exemption Regulation 330/2010 includes minimum price-fixing as a hardcore restriction.  To survive, an agreement to set minimum prices must meet the four conditions set out in TFEU Article 101(3).  In its May 2010 Guidelines on Vertical Restraints, the EU Commission explains that courts are to presume that minimum price-fixing will not satisfy Article 101(3).  Thus, minimum price-fixing appears presumptively illegal under EU law.

How does North American law approach minimum price-fixing? North American law reaches the opposite conclusion.  In the U.S., the U.S. Supreme Court overturned almost a century of precedent in Leegin Creative Leather Products when it ruled that minimum price-fixing agreements are subject to the rule of reason.  This means that a plaintiff must now show that the agreement is an unreasonable restraint on competition, based on: the defendant’s market share, history, nature of the product, relevant industry, and effect on competition.  Similarly, in Canada, the legislature amended the Competition Act, only offering a civilly-enforceable measure against minimum price-fixing in the Competition Tribunal if it has an “adverse effect on competition.”

Despite what your competition expert tells you, this isn’t rocket science: a good comparative competition law class and a thorough Google search will teach you all that.

Now, let’s examine (1) reasons this difference may be healthy, and (2) reasons it may not be all that important in practice.

1. A healthy difference

Any rookie comparativist can tell you that legal rules do not exist in a vacuum.   In the present context, differences between EU and North American legal systems may explain these healthy differences.

a.  EU stakeholders can benefit from the presumptive advantage

In the EU, minimum price-fixing’s presumptive illegality may serve consumer interests.  On the Old Continent, overburdened competition authorities cannot police the vast majority of price-fixing agreements.  A presumption of illegality allows these authorities to combat cartels more easily.

Likewise, competitors who suffer from competition will not likely enjoy resources to pursue costly litigation.  After all, if a dominant power is hurting competitors’ revenues–or denying potential competitors entry to the market altogether–, these “little guys” won’t have the funds–or even the legal personality–to lawyer up and bring suits against the “big guys.”

What about private enforcement?  Well you see, a key difference in almost all EU countries is that class-action suits do not exist.  In addition, some member state courts still deny individuals the right to bring suits based on EU competition law–despite European Court of Justice’s decisions (see, Courage and Manfredi)–except through individual tort action.  Though consumers might go through consumer associations to bring these claims, these few associations also lack resources when compared to the class action regime.

In addition, professional rules in EU Member States may prohibit lawyers from covering the up front costs in hopes of a contingency fee.  Without strong private enforcement mechanisms, a tough minimum price-fixing stance might do a bit of good towards evening out the playing field.

Finally, suits by competition authorities, competitors, or associations are far less likely to hurt dominant manufacturers financially.  Compared to the US system of treble damages and attorney fee awards, competition law infringers face lower penalties in the EU, usually only amounting to the actual damage caused plus lost profits.  Otherwise stated, violators only have to put the cookies back in the cookie jar, offering a small deterrent.

In this climate, the tougher EU approach may make good sense by offering the EU market some enhanced protection.

b.  US stakeholders do not need a presumptive advantage

On the other hand, US consumers probably don’t need as much protection.  Class-action suits offer a powerful tool to enforce competition rules.  Armies of sharp attorneys scour statistics to identify a competition infringement.  Once they find it, these class-action chasers can set up a class-action suit–which class members have to opt-out of–to go after the dollars attached to settlements or decisions.

Regardless of who–class actions, competitors, or competition authorities–brings legal action, the “little guys” in the US also have access to larger awards with treble damages and fee awards.  This provides more incentive and resources to allow the “little guy” to evidence that the price-fixing amounts to an unreasonable restraint on competition.

For the “big guys,” US manufacturers’ lower legal liability allows them to test out minimum price-fixing’s benefits, which may in turn offer consumers the best of both worlds–benefits of increased competition in addition to access to large awards if manufacturers use price-fixing abusively.

As seen, minimum price-fixing’s presumptive legality may better serve the US markets.

2. The difference may not matter

All that said, the difference may not matter.

After all, minimum  price-fixing faces scrutiny under both systems and both parties will have to carefully analyze the issue.  When evidence of price-fixing comes to a court or competition authority’s attention, the potential plaintiff will necessarily have to consider the potential defendant’s market share, history, the nature of the product, the relevant industry, and effects of the price-fixing (i.e., the rule of reason!) in assessing whether the agreement is indeed anti-competitive.

From a transactional standpoint, manufacturers must still carefully consider their legal risks by implementing such agreements.  That is, a manufacturer will still have to call in its competition expert to determine whether the benefits of a minimum price-fixing scheme will outweigh its legal liability.  Manufacturers will thus better analyze whether such measures will actually create profits and stimulate competition.

Finally, under either system, potential plaintiffs will logically and practically (to show damages!) only attack minimum price-fixing that actually restrains competition.  In any case, the potential plaintiffs (and, in turn, defendants) will necessarily apply the rule of reason in market analysis.  Thus, at the end of the day, the rule of reason will apply on both continents.

In sum, all this digital ink may be spilling in vain.  That said, we will begin to see the results as cases in Leegin‘s wake arise and as the Block Exemption Regulation’s transitional period expires 31 May 2011.

Thank you to Mrs. Shawna Mihala for assistance on private enforcement of EU competition law. Thank you also to Me. Sebastien Goinard for assistance in his LL.M. competition law course in Paris through the Universite de Cergy-Pontoise.

As previously mentioned by this author, South Africa will have a very tough time meeting its commitment to the UNFCCC process. The IRP2 process has brought together industry, government, the academe, civil society and industry – including independent power producers (IPPs) – as never before. The IRP2 hints at the changing nature of energy security ethics and legal approaches in Africa. While the IRP2 does not fully embrace this new brand of energy ethics, it will start South Africa on the road towards a reduced reliance on coal-fired electricity production. There is still hope for critics of the plan. Energy Minister Dipuo Peters has promised that the IRP2 was written with enough “flexibility” to, for example, embrace more renewable energy in the future should it be desired.[1]

In brief, South Africa suffers from an energy paradox. The country has a long tradition of electrification. Indeed, the city of Kimberley had streetlamps before London, England![2] For most of South Africa’s history, those with access to the grid enjoyed a very stable stream of supply from Eskom, the state-owned electricity producer, distributor and grid operator. Of course, the parastatal, as with all government services during the Apartheid era, had racially motivated aims and deliberately withheld services from black and coloured South Africans.[3] There are still serious ongoing disputes about equity in service provision.[4] Nearly a quarter of South African homes lack access to the grid. Over 55% of rural dwellers lack electricity. As no small aside, coal is king in South Africa. Eskom reported that during fiscal year 2009/2010, 232,812GW/h of electricity were sent out on the grid – 92.8% of this was derived from coal-fire power plants, 5.5% from nuclear power, 1.5% from pumped storage, .5% from renewables and .02% from gas.

Since 1994, a build-out program has aimed to increase equity in service delivery to the general population, but power shortages  plagued the country in 2008 and are threatening to challenge the grid again during the coming decade. While it has been acknowledged that powerful industry players cut back-room deals for cheaper and more secure supply contracts with Eskom, the government has had to ram through a “medium term risk mitigation plan” (MTRMP) – fittingly entitled “Keeping the Lights On” – to provide a basic level of energy security for the general population over the coming decade. The plan for power generation over the medium-term is carbon intensive, although programs for demand-side management and energy conversation are being funded.

The IRP2 is the crucial link for long-term electricity planning in South Africa. Elements of sustainable development theory are present in the strategy, as criteria such as water usage, climate change effects (environmental), localisation benefits, regional development goals (social), and financial costs and portfolio risks (economic) are all accounted for.[5] The government has even extended the consultation period for the IRP2 process to harness more input and support from civil society members and sub-national levels of government.[6] The plan would see licensed capacity on the grid expand from 44,535MW in 2010 to 85,241MW in 2030, with a reserve margin of 15%. The bulk of new generation would come from renewables (11,500MW), nuclear power (9600MW), coal-fired power (5,000MW), open-cycle gas turbine generation (4830MW), and imported hydro-power (3,349MW).[7] While these numbers look promising, it must be mentioned that over the medium-term all regular plans to commission major coal-fired facilities at Medupi, Kusile, and Ingula are going ahead – despite protests from local South Africans to World Bank officials.

To a large degree, the assumptions underlying the IRP2 reflect an out-dated model of energy ethics. Predictions of demand and supply are underpinned by assumptions of gross domestic product (GDP) forecasting, even though this indicator is increasingly under fire and decreasingly touted by developed nations. Additionally, while public buy-in is being sought, the entire energy plan seems to hinge on large-scale, capital intensive energy planning. Very little room is carved out for grassroots involvement. Indeed, recent efforts by the Energy Minister to promote initiatives such as community wind projects do not seem to fit into this policy in any real fashion. Also, the report lacks detail as to how demand-side management will improve. Mandating Eskom to actively reduce consumption patterns in South Africa defies the very ethos of the parastatal. A third-party organization should be tasked with this responsibility, and plans to create an independent system operator need to be sped up to drive innovation and enhance the competitiveness of IPPs.

As noted above, the IRP2 has a lot of problems. However, the principles of sustainable development and climate law have started to seep into the domestic energy policy process of South Africa. Only time will tell if South Africa will truly embark upon a new path or stay chained to the energy paradox.

[2] G.Z. Ben-Yaacov, “Power Generation in South Africa to the Year 2000” (1979) 4 Energy 47 at 47.

[3] Leonard Gentle, “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism” in David A. MacDonald (ed.) Electric Capitalism: Recolonising Africa on the Power Grid (Cape Town: HSRC Press, 2009) at 50ff.

[4] Jackie Dugard, “Power to the People? A Rights Based Analysis of South Africa’s Electricity Services” in David A. MacDonald (ed.) Electric Capitalism: Recolonising Africa on the Power Grid (Cape Town: HSRC Press, 2009) at 264ff.

[5] Department of Energy, Integrated Resource Plan (2010 Rev. 2) at 13.

[6] Terrence Creamer, “Urgent Engagement: Provincial roadshows planned to broaden energy-plan consultation” (29 October 2010) Engineering News at 11.

[7] Ibid at 17.

“Our history has been a bitter one dominated by colonialism, racism, apartheid, sexism and repressive labour policies. The result is that poverty and degradation exist side by side with modern cities and a developed mining, industrial and commercial infrastructure. Our income distribution is racially distorted and ranks as one of the most unequal in the world – lavish wealth and abject poverty characterise our society.”[1]

Since 1994 the African National Congress (ANC) has tried to ‘have its cake and eat it, too.’ The ANC has led a broad-based coalition that governs, more or less, from the centre of the South African political scene, but its current domestic economic policies do not seem to withstand the strong pull of its international commitments. Economically, ‘revolution’ in South Africa has been a tricky subject for policymakers within the ANC. The government has since 1994 been part of a tri-partite alliance with the Coalition of South African Trade Unions (COSATU) and the South African Communist Party (SACP) – these two parties giving a strong leftist tinge to the government’s composition and policymaking ability.

The country is outwardly open to investment, and President Jacob Zuma has boldly courted corporations to assure them his coalition will not create an “anti-business” atmosphere. However, committing to a neo-liberal trade agenda has not been easy for Zuma politically, and has been very tough on the nation. Economic stimulus packages have been described as a process of “picking winners” in South Africa, mostly because the ANC has had to balance its political standing with larger ambitions, which include becoming a member of the BRIC economic bloc.

Following the 1994 regime changeover, social development imperatives weighed heavily upon former President Nelson Mandela. The Reconstruction and Development Programme (RDP) has been a key policy fixture for the ANC since that time, yet much work remains to be done before the party can claim to have succeeded in implementing the strategy. Over time, the external economic outlook of the ANC has shifted dramatically “from the radical social democracy … in the 1980s to the neo-liberalism of GEAR [Growth, Employment and Redistribution action plan] in the 1990s.”[2] As Harald Winkler points out, “the imperatives of reconstruction and development have been in tension with a macroeconomic framework that emphasises economic growth as the driver of development….”[3] South Africa is currently attempting to widen free trade agreements in order to boost foreign direct investment to drive its internal development strategies. Yet, this strategy fails to heed the above-recognized inherent tensions of this pathway.

The social strains of an expedited free trade process might prove unbearable for South Africa. The nation’s poor increasingly resent treaty involvement with the Southern African Development Community, which allows for relaxed tariff barriers and immigration controls with member nations. South Africa is flooded with refugees and economic migrants, lacks adequate national infrastructure, and labour grievances are vast. A nationwide strike led by COSATU nearly crippled the country following the 2010 FIFA World Cup. A recent New York Times article drew attention to the effects of the bipolar nature of South African economic planning upon the population at large. More than half of blacks aged 15-34 are without work. There are fears that a deeper cultural problem may be to blame, as “economic modernisation has undermined traditional local identities.” This can cause widespread social insecurity and a breakdown of the social structures that buoy the state.

A heavily regulated commercial environment confronts companies that wish to do business in South Africa, putting the breaks on the full-blown trade liberalization that the ANC is aiming for. Policymakers should be balancing the imperatives of the RDP with the widening of international trade, but politics are inhibiting this process. Influential observers have wondered if this might be the end of the tri-partite coalition. Since the ANC wants to liberalize trade, why does it not liberalize politics and release itself from a political bind with the SACP and COSATU? Regardless of one’s political stripes the respective parties seem worlds apart in terms of economic outlook. The present political situation hampers a larger debate over the steering of the nation’s economy. Innovation in industry and trade should be accompanied by innovation and the free flow of ideas and policy debate in politics, something that simply does not happen under the ANC’s supermajority in parliament.

[2] Leonard Gentle, “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism” in David A. MacDonald (ed.) Electric Capitalism: Recolonising Africa on the Power Grid (Cape Town: HSRC Press, 2009) 50 at 68.

[3] Harald Winkler, Cleaner Energy, Cooler Planet (Cape Town: HSRC Press, 2009) at 31.

Sadly, it has become commonplace for developed nations to make big pledges when tragedies occur, but seldom are all funds collected to drive development strategies. Only 10% of funds pledged to Haiti after the January 2010 earthquake have arrived in Port au Prince thus far. Core funding is often lumped into ‘security programs’, while so-called ‘soft development’ strategies languish. Soft development aid dollars are often tied up in the activities of foreign NGOs. The amount of NGOs in Haiti is staggering. The presence of so many foreign personnel, who are often unaccountable to the Haitian government or people as a whole, is troubling and potentially destabilizing. Furthermore, the flow of private security personnel into Haiti could also drive conflict.

Policing in the Western world has undergone a massive metamorphosis in the past two decades. A “multilateralization” process has unfolded, which has made the state police less prevalent in the daily lives of citizens.[2] Private security firms, security technologies, and an array of other services have replaced the state as the primary keeper of the peace. This fact is not reflected at all in the Western-driven UN policy towards Haiti, where the way forward is often seen as entrenching a strong, top-down, state-centred policing model. Why is one model good for ‘us’, and another good for ‘them’? The UN Transition Mission in Haiti (UNTMIH) has as a core part of its mandate the obligation to train “PNH specialized units in crowd control, the rapid reaction force and Palace security, areas considered to be of distinct importance.” Nothing in this mission mandate touched upon the redress of past injustices in Haiti. Language tying security efforts to economic reforms and trade liberalization is commonplace in UN resolutions on Haiti.[3] The MINUSTAH mandate of 2004 called for the creation of a “secure and stable environment within which the constitutional and political process in Haiti can take place,” so as to promote the “economic stability of Haiti”.[4] This mandate further aimed:

to assist the Transitional Government, particularly the Haitian National Police, with comprehensive and sustainable Disarmament, Demobilization and Reintegration (DDR) programmes for all armed groups, including women and children associated with such groups, as well as weapons control and public security measures….[5]

The Police Nationale d’Haïti (PNH) has long been the primary entity with which the West has done business in Haiti, whereas foreign actors have backed away from dealing with civil society groups, particularly the Lavalas movement which twice elected Aristide. Robert Perito claims that despite after “nearly two decades of international assistance, the PNH remains dysfunctional, corrupt and incapable of controlling crime and maintaining public order without the presence of U.N. forces.”[6] Of course, there is nothing inherently wrong with promoting economic stability and security in Haiti, but what type of security are we talking about and what type of economy?

Yasmine Shamsie sharply criticizes UN policy as being out of touch with Haitian realities, highlighting that the development strategy in Haiti has long:

…focused on the export-manufacturing sector, devoting little attention to the country’s rural sector. In a country where close to 65% of the population is engaged in some form of agricultural production, assisting peasant farmers would have been the most direct way of alleviating poverty (donors contended poverty alleviation was their overall objective) and addressing the vast imbalance between rich and poor, thereby fostering political equality. Yet international donors directed less than 1% of the $550 million in donor aid and loans distributed in FY 94/95 to peasant agriculture.[7]

James Lebovic contends that in the post-Cold War era it is “apparent that the UN and various governmental and non-governmental organizations have pursued a peace-building strategy of promoting market economies and democratic elections that has often been ineffective or counterproductive.”[8] This analysis lends itself to the argument that UN policy towards Haiti has done more to solidify the position of the wealthy elites in Port-au-Prince, and the large landowners (many of them empowered by the Duvalier family[9]), than to alleviate the pressure created by massive social and economic inequalities in Haiti. Furthermore, former President Bill Clinton may lack the proper credentials to be a UN emissary to Haiti. His administration stymied efforts by Aristide to reform the Haitian economy and disperse Haiti’s wealth more equally amongst the rural poor. Instead of addressing economic inequalities, Aristide, was forced into the privatization of state entities, which only drove insecurity issues and led to open conflict.[10] Morley and McGillion posit that under the Clinton administration:

efforts to democratize the Haitian state were perceived as a potential threat to longer-term U.S. objectives: the restoration of political stability; the survival of an, albeit reformed, military institution with its external linkages to the Pentagon intact; and the promotion of an open economy and a development strategy that accorded foreign investors a central role.[11]

As the United States and most Western economies have entered into a period of “state capitalism” themselves, it would be unjust for future UN policy towards Haiti to force neo-liberal economic development upon a struggling nation via ill-planned UN Security Council resolutions and conceptually weak security programs. Similarly, the top-down, state-centred approach to security in Haiti has continuously served to entrench right-wing, violent elements of the Haitian political scene, drowning out the voices of the rural agriculturalists and Lavalas supporters who make valid claims against the trade and development agenda of Western powers and Haitian elites. If Western powers want to empower Haitian people and recognize their ability to shepherd the country out of chaos, they should approach security provision in a more nuanced manner. Conceptual approaches from Africa might serve well in Haiti. Bruce Baker, who posits a theory of “multi-choice policing” in Africa, writes:

The extended family may protect the compound, but it is the street committee that sorts out the assault at the bar, the sorcerer that detects the culprit, the headman or local priest that mediates a settlement over damages caused by a neighbour, a spontaneous mob that handles the bus station pickpocket, the commercial security guard that secures the entrance to the city centre office and the state police that are called if a colleague is murdered at the bank. Policing, as it is experienced, is a complex pattern of overlapping policing agencies.[12]

Why not strengthen the social fabric of Haitian communities instead of ignoring it? While it may be easier to deal with one body over the many disparate factions that can provide security in Haiti, it is time to recognize that the PNH has had a deleterious effect on at least some aspects of state-building and that all the reforms and training in the world will not reverse a culture of brutality overnight.

Perito claims that the “processes of disaster response and recovery generally reinforce existing inequalities.”[13] This is something that should be heeded as the international community takes up the call to ‘fix’ Haiti. Justice reforms, meaningful agricultural reforms, emigration programs, and addressing the economic injustices of the past perpetrated by the French and American governments must be key components of future UN policy towards Haiti. Sadly, with a French and American veto on the Security Council this will be a tough proposition for leaders to make.

[2] David H. Bayley and Clifford D. Shearing, The New Structure of Policing: Description, Conceptualization, and Research Agenda (Washington, D.C.: National Institute of Justice, 2001) at 9.

[3] This is true in the UNTMIH mandate, but is also in evidence in the MIPONUH police-training mission mandate.

[4] UNSC Res. 1541, UNSCOR, 2004, S/RES/1542 1-2.

[5] Ibid.

[6] Robert M. Perito, “Haiti After the Earthquake” (2010) 5 Peace Brief 1 at 3.

[7] Yasmine Shamsie, “Building ‘Low-Intensity’ Democracy in Haiti: The OAS Contribution” (2004) 25:6 Third World Quarterly 1097 at 1102.

[8] James H Lebovic, “Uniting for Peace? Democracies and United Nations Peace Operations after the Cold War” (2004) 48:6 Journal of Conflict Resolution 910 at 934.

[9] Arché Jean, The Role of Agriculture in the Economic Development of Haiti (Indiana: AuthorHouse, 2008) at 97ff.

[10] Shamsie, supra note 4 at 1101.

[11] Morris Morley & Chris McGillion, “’Disobedient’ Generals and the Politics of Redemocratization: The Clinton Administration and Haiti” (1997) 112:3 Political Science Quarterly 363 at 363.

[12] Bruce Baker, “Multi-choice policing in Africa: Is the continent following the South African pattern?” (2004) 35:2 Societies in Transition 204 and 204.

[13] Perito, supra note 6.

Yet Mike Bakunin, who recently left SOAR to establish a sister branch in Rivière Ouest (Manitoba) with a more awesome acronym, claims that these groups don’t just advocate violence. “For those who think that anarchists are just about chaos and firebombing, that’s not the case. Groups like FFFC Ottawa give the rest of us a bad name – we can actually engage with the issues as well as anyone. Now obviously the summit will be focusing on economic and financial matters, so we think that we can best get our message across if we zero in on those issues as well. It’s hard to convey complex messages like that with firebombs…not impossible though.”

As an example, Mike points to the debate over a proposed international bank tax. Although countries including Britain and the U.S. were initially pushing for a tax on banks to pay for bailouts when they became necessary, countries whose banks never needed to be bailed out such as Australia, Brazil, and Japan – with Canada leading the way – opposed the idea. Now as an alternative the Canadian government is proposing an idea called “embedded contingent capital” (ECC); essentially bonds issued by banks which would automatically convert into shares in times of crisis, providing instant extra capital. Finance Minister Jim Flaherty and Julie Dickson, the head of the Office of the Superintendent of Financial Institutions (OSFI), have recently been touting the merits of ECC. “The problem,” Mike says, “is that because there’s so much uncertainty about what would trigger the conversion, buyers of the bonds will demand a hefty risk premium which may end up costing the banks more than the tax would have. Plus, in a time of crisis, the conversion of the bonds might scare away other investors and exacerbate capital flight. So I think we have to fight ‘the man’ on this – even if ‘the man’ is Julie Dickson.”

It’s clear that ECC won’t be the only financial reform discussed at the summit. Reform of the Basel Accords – international banking regulations – will be a major focus. The Basel Committee on Banking Supervision (BCBS), based at the headquarters of the Bank for International Settlements in Basel, Switzerland, is composed of representatives of the central banks of developed and emerging market countries. It was created in 1974 in an effort to harmonize banking regulations across borders. Agreements among BCBS member states – called the Basel Accords – were negotiated by national leaders, finance ministers, and central bank governors. These agreements do not operate like treaties in the normal sense, with each country signing and ratifying them, but rather are intended as an international standard that national bank regulators can use when creating their domestic regulations. Implementation is left to each country’s discretion, but most regulators do in fact implement the accords (95 national regulators have committed to implementing the most recent accord by 2015). They aren’t applied uniformly however, since national regulators may include local variations on the rules.

The first agreement, now called Basel I, was agreed in 1988. It was designed around the concept of minimum capital requirements: the minimum amount of cash banks have to keep on hand relative to their total assets (loans they are owed). Basel I created 5 categories of assets based on risk level, and required banks to keep capital equal to 8% of the assets, weighted according to risk. It was implemented by BCBS member states by 1992. The second accord, Basel II, was agreed in 2004, and served to “upgrade” the original accord, creating a three-pillar structure. The first added nuance to the capital requirements of Basel I, distinguishing between three different categories of risk. The second gave new tools to regulators to better review compliance with capital requirements. The third pillar promoted market discipline in order to foster stability and predictability. Negotiations for Basel III were undertaken in response to the recent global financial crisis, and the G20 summits are a key part of the process. Proposed changes to Basel II include: revising the categories of capital (tiers) to improve transparency, strengthening risk coverage requirements, introducing a leverage ratio to supplement the risk rules, requiring the creation of capital buffers to promote counter-cyclicality, and a minimum liquidity standard for international banks. G20 finance ministers see the eventual implementation of Basel III as inevitable.

Mike believes it’s crucial for the protestors to have their voice heard while the Basel negotiations proceed in Toronto. “In pushing for a stateless society, we have to make the most of times when the different parts of the machine – government and big corporations and banks – turn on one another. First they’ll fight about international regulations, and then the next step is complete mutual annihilation. Basically what I’m saying is that we want the most stringent risk coverage and capitalization rules possible.”

The challenge for the collectivist anarchists is ensuring that they have a clear position on every financial reform issue, lest they appear to the public as an incoherent rabble. “Right now at our meetings we’re trying to hammer out what stance we’ll take on phase 2 of the International Accounting Standards Board’s new Financial Reporting Standards, and their impact on the life insurance industry.” Finance Minister Flaherty has supported Canadian life insurers in their appeal to the board for an exemption from the new rule. “On the one hand, big corporations shouldn’t be exempt from accounting best practices, but on the other hand these new rules would definitely create a lot of volatility for insurers– particularly with regard to long-term products. So I guess we’re not sure if this is a step forwards or backwards in the march to the destruction of the state. We hope to have decided by next week.”

Despite the complexity of the negotiations, Mike is confident his group’s nuanced message will get across to the public and to world leaders. “I’m optimistic. We’ll print out our arguments in an executive summary, and see if we can submit if for consideration by the delegates.”

Asked if there was a backup plan for conveying their opinions, Mike considers: “…probably firebombs.”

THE FIRE REPRESENTS EMBEDDED CONTINGENT CAPITAL

Numbers that the Americans are debating include a levy at 0.15% for 10 years on all financial institutions with more than $50 billion in consolidated assets.

With Germany and England ready to take action and implement similar levies, and with Obama seeking to push the US to do the same, it’s unclear what kind of overall effect these levies would have on banking if they are carried out on a piecemeal, domestic basis. These financial institutions are international in character. Their activities transcend national borders, and thus any attempt at regulation will need to account for the cross-border transactions and international nature of the institutions. Will domestic regulation really solve the inherent problem of big banks making big investments without thinking about the potentially big (and devastating) consequences?  Probably not.  So then what’s the point?

Edwin M. Truman, Senior Fellow at the Peterson Institution for International Economics in Washington, proposes a different analysis. He says, “There are two dimensions — paying for the past and paying for the future.”  Instead of seeing the tax as a sure-fire way to implement reform in the banking industry, he would see it as a way for governments to recoup their bailout cash and to provide a cushion for future bailouts.

One other contentious factor in the taxing of banks is the worry that levies will create further competition for banking jurisdictions. While when it comes to corporations law, Roberta Romano has deemed this competition for jurisdiction the genius of American corporate law, it is not clear that there is a direct parallel for the banking sector. For a financial institution, its bottom line may more readily be finding the jurisdiction with the lowest tax, as opposed to a jurisdiction with great legal experience in banking affairs. Starting competition between major governments as to who could offer the lowest levy won’t address the major internal reforms sought for the entire banking system.  Banks are also usually backed by some kind of governmental guarantee (at least to a certain amount), which complicates a government’s interest in hosting a foreign bank seeking to evade that nation’s bank levies.

So what can these levies do so long as there is no unified global approach? The answer is, in short, insurance.

In the case of Sweden, the insurance role of the levy  funded by those financial institutions creating the risks is clear.  According to measures adopted late last year, the government plans to raise roughly 2.5% of the GDP in the form of bank levies over the next 15 years. The annual levies begin at 0.018% of the institution’s liabilities (equity capital and some junior debt securities excepted.) Starting in 2011, the levies will rise to 0.036%. Sweden has based these numbers on what they project a potential future banking crisis would cost. As such, money collected under these taxes is allocated into a stability fund. If a future crisis were to arise, bailouts would come from this fund and not from the public purse.

Meanwhile, the world awaits to see if there will be a global reaction to these proposed levies. All eyes will be on the G-20 meetings in Washington later this month when the IMF delivers a report on bank levies.  While it still remains a contentious matter, there may still be hope for a more unified approach in order to revolutionize responsibility undertaken by financial institutions.