from Development Channel

POSCO vs. The People?

October 09, 2013

A farmer collects betel leaves near POSCO India's Odisha Project site in the eastern Indian state of Odisha, February 2013 (Courtesy Reuters).
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Last week, a United Nations expert panel issued a harsh report expressing concern over the construction of a $12 billion steel project in Odisha, India, financed by the South Korean steel conglomerate POSCO. The project reportedly threatens to forcibly displace over 22,000 people and disrupt the livelihoods of many thousands more. The forests and fields now claimed by the Indian government to build the sprawling project have long been occupied by locals, who rely on the land for their livelihoods.

As I demonstrated in my Brooklyn Journal of International Law article last year, the tension between aggregate economic growth and the property rights of vulnerable groups is a longstanding development challenge. Often, growth-enhancing land acquisitions financed by foreign investors forcibly displace the original resource users and ignore their property rights claims, intensifying property insecurity and resource scarcity—even while bringing macroeconomic growth.

Legally, governments should protect the rights of all their citizens—rich and poor. But the customary rights of subsistence local resource owners are too often ignored by elites, who sometimes even pocket kickbacks from the transnational investments that displace these local resource users.. In India, residents of Odisha decry government ineptitude and corruption for jeopardizing their property rights and livelihoods. POSCO likewise criticizes the government for not effectively resolving land disputes, which have delayed construction for almost eight years. If rights were fairly recognized and adequate compensation granted to current users, then both local owners and aspiring investors who want to play by fair rules would be better off.

Raquel Rolnik, UN Special Rapporteur on adequate housing, stressed that “forced evictions constitute gross violations of human rights,” in her statement regarding the Odisha steel project. But what can be done when governments fail to protect human rights and global companies like POSCO stand to benefit?

International investors finance these projects and own the companies that develop them, so will profit from their success.  These global investors therefore have an ethical obligation to ensure that the rights of all affected communities are respected, in order to promote economic development that is inclusive and sustainable, and not just beneficial to a wealthy few. In the case of the steel project in Odisha, POSCO’s international investors include ABP, Norges Bank Investment Management, Bank of New York Mellon, Blackrock, Deutsche Bank, and JPMorgan Chase.

Fortunately, some of these leading investors already have a framework to safeguard environmental and human rights norms for the projects in which they are invested.  The Equator Principles -- currently followed by 78 financial institutions, covering over 70 percent of international project finance debt in emerging markets -- codify norms for human rights, labor rights, and the environment. The principles also reflect a consensus among multilateral development banks and other development finance institutions regarding environmental and social standards.

These principles should be extended to cover all private sector investments, not just project finance, so that they would apply to cases like POSCO’s proposed steel plant, which now threatens thousands of poor rural residents. In addition, the principles need to be strengthened to prevent free riding by member companies seeking to boost their reputations without taking the trouble of actually complying with the principles. An independent monitoring mechanism should be established to ensure that all Equator Principle signatories are really playing by the rules.

When voluntary measures fail, mere UN reports, however harsh, are not enough to change the facts on the ground. Impacted communities need advocates to represent their interests in complex legal disputes, which entangle investors from many countries. As I have argued elsewhere, mobilizing international corporate lawyers to represent marginalized communities around the world would level the playing field, and would help ensure the rules of the global economy work for everyone, not just the rich and powerful.