Milk contamination: Conflict between global corporations and public interest

This article was first published in The Jakarta Post on 9 March 2011, can be accessed through the link HERE

It is regrettable that the issue of infant formula milk contamination may only end up with a plan to conduct another investigative research. This plan clearly shows the government’s non-compliance to the Supreme Court’s verdict, which demanded three institutions publish a list of contaminated milk products distributed in 2003-2006.

To date, there have been no convincing reasons why the Health Ministry, the Food and Drug Supervisory Body (BPOM) and the Bogor Institute of Agriculture (IPB) refused to abide by the verdict. The ministry assumes no obligation to publish, as it was not the institution that conducted the research, while IPB argues that they have no legal basis to publish its research findings to the public.

If viewed more closely, this case involves the interests of global corporations, and the foremost global producers of formula milk. Undoubtedly, there is a fear that these corporations will have to face legal suits filed by consumers when the research findings are disseminated. This does not include the decrease in worldwide consumer’s confidence in several leading brands that would also lead to a decline in companies’ profit.

In short, the adverse impact that would occur and litigation costs that must be paid by these corporations will be very big indeed. At the same time, the government’s dependence on foreign direct investments has also been so high. This situation explains why the Health Ministry chose to ignore the ruling of the Supreme Court, and violated the public’s right to information.

The ability of global corporations in influencing the government’s public policies is not unusual. There are at least three different ways that are often carried out by global corporations in protecting their business interests in developing countries. And there have been many examples where the foreign corporation uses these means to secure their business activities in Indonesia.

First, foreign investment has the characteristics where capital can be transferred and factories can be relocated from one country to another. This situation requires host governments to maintain positive investment climate, because the opposite condition would lead to the relocation of capital to other countries.

It is common that when many foreign investors are threatening to relocate their operations to another country, the government will im-mediately take measures to amend regulations on labor, taxation and business permits. Unfortunately, in many cases these measures are taken without taking into consideration the social impacts that may follow.

Second, foreign investment activities are usually conducted in cooperation with politicians or people who have access to government. This cooperation is generally done through the mechanism of joint operation contracts or by allocating shares ownership for a national company that has a direct or indirect affiliation with political leaders or government officials.

This cooperation is required by global corporations to ensure that the parliament and government will not enact any law or regulation that could adversely impact their business interests.

For instance, there was a joint operation between an Australian mining company and a national company which has affiliations with the leader of a political party. These companies invested in a natural gas exploitation project in Sidoarjo, East Java. Apparently, this project has been stopped due to the mud flow. Perhaps, because of the political influence wielded by the national partners, that foreign company can safely withdraw from this project, regardless of the fact that social and economic impacts are still felt by the communities affected by the mud flow up until recently.

Third, when unfavorable situations occur, foreign corporations will usually request their government initiate a “G to G” settlement. Indeed, there is no guarantee that the host government would immediately change its policy, but the bargaining power owned by governments from developed countries may at least force governments in developing countries to delay or replace the policy out of concern for the one that is less harmful to the interests of foreign investment.

The use of a G to G settlement by the foreign investor in an attempt to rescue their business operations in Indonesia is not unprecedented. This can clearly be seen when the government of one developed country express its disappointment against the ruling of the Commercial Court on the bankruptcy of a subsidiary of a Canadian insurance company in 2002. Eventually, that ruling was annulled by the Supreme Court. Whether it is true or not, the public might have the opinion that foreign pressure had influences the final ruling in the case.

So what should be done by the Indonesian government in addressing the pressures of global corporate power? The main problem in this country is the lack of legal certainty. The three ways taken by global corporations in securing their investment activity as described above occurs precisely because they believe that the rule of law in Indonesia cannot provide certainty on the limits of rights and obligations of persons and legal entities.

In the milk contamination case for instance, it is unclear who has the obligation to announce the research findings which may affect public safety. This is not to mention the issue of the legal protection of the researchers, and the producers themselves.

Obviously, producers must also be given equal opportunities to explain and prove that their product is safe for consumption. Unfortunately, the government has not yet provided a clear and fair accountability mechanism in this issue.

The lack of legal certainty would make the government become more powerless in regulating global corporations. There have been many cases in which companies with global brands have been willing to pay compensation and recall their products from the market. Similarly, there was a case where a global corporation in the mining sector was willing to abide by the court’s decision to make restitutions following a leak of one of its pipelines. Can the same thing also happen in Indonesia?

There are many things that must be done, but among the most important issues is legal certainty. A legal certainty must guarantee that any act detrimental to the interests of the public will be made accountable through a transparent and fair mechanism.

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