MCC Why fuss over it? | Sunday Observer

MCC Why fuss over it?

We feature below an interview with former Ambassador Dr. Palitha Kohona on the proposed Millennium Challenge Corporation Compact (MCC) between the United States and Sri Lanka.

The interview followed the opening talk given by Dr. Kohona on the invitation of the Professionals’ National Front (PNF) at a seminar on the MCC on Monday, July 27, titled ‘Our motherland we are losing through MCC.”

Ambassador Dr. Palitha Kohona, was the Secretary, Ministry of Foreign Affairs from 2006 to 2009 and Permanent Representative of Sri Lanka to the United Nations in New York from 2009 to 2015.


Q. This is the second public talk you have given in this Organisation of Professional Associations of Sri Lanka OPASL auditorium on the MCC in the past three weeks. You explained why you are worried about the MCC being signed by Sri Lanka. However, for the benefit of a wider newspaper readership could you further specify what exactly this agreement is, because there are those in Sri Lanka who believe it is something useful for the country?

A. Let us ask ourselves, what is the Millennium Challenge Corporation (MCC)? The simple answer is that it is a bilateral US foreign aid mechanism established by the US Congress in 2004. It is said to be an independent agency, separate from the State Department and USAID.

But this statement has been challenged by many commentators. In fact, the MCC Board of Directors is comprised the Secretary of State (Chair), Secretary of the Treasury, the US Trade Representative, the Administrator of USAID, the CEO of the MCC, and four private sector members appointed by the US President with the advice and consent of the US Senate.

The current Chief Executive Officer of the MCC is Sean Cairncross, nominated by President Donald Trump on January 8, 2018 and sworn in on June 24, 2019. He was a former senior advisor to President Trump. Against the above background, it is difficult to resist the suggestion that the MCC is yet another arm of the US foreign policy establishment. It will necessarily pursue US foreign policy goals. Many commentators have unequivocally asserted this.

Q. Is not the sole objective of the MCC poverty alleviation?

A. This is the MCC’s purported primary commitment. It is said to be poverty reduction. However, many have argued that it is all about “reshaping the legal, institutional, infrastructural and financial contexts of poorer countries to better suit US economic and commercial interests and policy.

Once one goes through all the publicly available information from diverse perspectives, one tends to lean towards the suggestion that the MCC appears to be an instrument of the ‘new imperialism’ pursuing “economic hegemony through the extension and ever-deepening penetration of neoliberal capitalism’.

Q. The projects of the MCC are mainly transport and concerning land of Sri Lanka. What is dangerous about this?

A. The MCC is intended to fund two main projects in Sri Lanka – the transport project focuses on improving traffic management, improving the road network along the Central Ring Road for better connectivity between the Western Province and peripheral provinces, and the modernisation of the public bus system.

The land project focuses on creating a parcel fabric map and inventory of state lands, digitising the deeds registry, facilitating the ongoing work to move Sri Lanka from a deed registration system to a title registration system, digitising key valuation information for properties in targeted districts, and establishing land policy councils to support the Government’s work on land policy and legislation.

While appearing to be innocuous at face value, but read with the rest of the compact, we seem to be exposing a range of our sovereign rights to a foreign power and face the prospect of compromising our key national interests.

Q. When was the current MCC proposals finalised?

A. Sri Lanka’s project proposals were submitted to the MCC Board in November 2017 and the Sri Lanka compact was approved by the MCC Board in April 2019, just a few days after the disastrous Easter Sunday bombings which left a deep scar on the national psyche.

Q. Wasn’t it first mooted around 2004?

A. At that time it was not finalised as an agreement/treaty. Only the offer of USD 500 million had been made by the MCC. It was re-submitted with a more comprehensive plan only during the last regime.

Q. You stated in your speech that the MCC was negotiated in secret in 2017?

A. Yes, the MCC was negotiated in comparative secrecy by a team established by the former Prime Minister Ranil Wickremesinghe and the Corporation. News about it seeped out after a piece was published in the Sunday Times by journalist Iqbal Athas.

In response to persistent public demands for transparency, a draft of the MCC was at last published on the website of the Sri Lankan Ministry of Finance last November 5, just 11 days before the hotly contested Presidential election.

The MCC was a subject that featured prominently during the campaign, including giving rise to a fast unto death by a respected Bhikkhu. Fortunately, this catastrophe was averted following assurances given by the main Presidential aspirants.

Those opposed to the proposed MCC threw their weight behind Gotabaya Rajapaksa in the belief that his thinking was the same.

Q. What is the nature of the MCC agreement?

A. The MCC itself is intended to be an agreement of treaty status. I speak with reference to Article 6 Section 6.4 of the draft Compact.

One thing is very clear. This Compact is an international agreement/treaty and as such shall be governed by international law. It is between two entities capable of entering into agreements of treaty status.

The Preamble to the MCC Compact states that it is a US Government Corporation acting on behalf of the US Government concluding this Compact with Sri Lanka acting through its Ministry of Finance and Mass Media. It is intended to create legally binding rights and obligations at international law. The draft itself says it is governed by international law. This suggests that the Compact and all its activities will be above the Sri Lankan law and Sri Lankan citizens may not be able to seek legal assistance from their country’s judicial system in the event of any dispute arising with regard to the implementation of the Compact, including for death, loss or damage caused by the MCC.

Moreover, Sri Lanka, for its part, could be taken to an international dispute settlement tribunal if it breaches any of its commitments under the Compact or backs out of the Compact inconsistently with its provisions. Sri Lanka, unlike the USA, has only limited experience in international adjudication and is likely to be confronted by serious constraints in such a situation.

Q. Could you cite some examples to show the alleged dangers mentioned above?

A. This following example would illustrate my point. The US has taken China before the World Trade Organisation (WTO) dispute settlement body 20 times and won on every occasion. Trade disputes are not easy to resolve, but the United States has generally won trade disputes, especially those with China, in cases it brought before the World Trade Organization.

Contrary to President Trump’s assertion that, “We lose the lawsuits”, US officials have won 20 times in their challenges to Chinese trade practices since the first US WTO case against China in 2004.

None were lost. Three cases are still pending. The US has enormous experience and expertise in fighting cases before international tribunals unlike us.

Q. For how long is the MCC agreement valid, and how shall it be terminated, if at all?

A. It is important to note that the MCC’s provisions are carefully drafted and it also includes a sunset clause (Article 7 Section 7.4). After it is brought into force, the Compact shall remain in force for five years, unless terminated earlier under Section 5.1. Its provisions on termination (Article 5 Section 5.1). state, either party may terminate this Compact without cause in its entirety by giving the other Party 30 days prior notice. The MCC may also terminate this Compact or MCC funding without cause in part by giving the Government 30 days prior written notice.

Q. And not cite any reasons or be compelled to pay compensation for any damages caused or have any accountability…?

A. Nothing of that kind is needed according to this agreement. The US could basically do as it pleases if it so fancies and could walk away from this agreement at any time without assigning a cause. If this happens, we could be left high and dry.

Q. But Sri Lanka too has the same right, isn’t it?

A. While Sri Lanka could theoretically terminate the Compact under this provision, the practicalities of doing so and incurring the displeasure of the US superpower needs to be kept in mind.

The realities of global power politics are a practical constraint. On the other hand, the US and the MCC indeed have, in other instances, terminated MCC Compacts without cause and for reasons not connected with its stated goals of alleviation of poverty or development.

Q. Can you give some examples?

A. The case of Madagascar where the Compact was terminated after three years for political reasons comes to mind.

The above provision that I have cited in the previous answer would enable the MCC to terminate the Compact or the funding for reasons that would be purely political – such as them not being pleased with the government of the country.

That is where the risk for Sri Lanka lies. The US and the MCC could walk away, even for flimsy political reasons, perfectly in accordance with the provisions of the Compact, without incurring any liability.

Q. In this agreement as with any agreement of this nature, economic intricacies are closely entwined with political factors isn’t it?

A. Political factors are never too far from the economic decision making processes of a major power. In 2007, the US withdrew the MCC offer initially made to Sri Lanka after the tsunami for such political reasons.

A diplomatic cable sent by Ambassador Blake on January 14, 2008 (reproduced in Wikileaks), twelve days after the Sri Lankan government “decided to abrogate the CFA (Ceasefire Agreement)” on January 2, states that “in December 2007, the Board of the Millennium Challenge Corporation removed Sri Lanka as a country eligible for MCC lending for 2008.”

The cancellation of Sri Lanka’s eligibility status was one among a number of measures taken by the US to signal its ‘displeasure’ at ‘the escalating violence and growing human rights problems’ in Sri Lanka. The determination that there were human rights problems in Sri Lanka was made by the US in accordance with its own criteria with no input from the affected country, Sri Lanka.

The US action was taken to exert political pressure on Sri Lanka to influence its domestic policy making at a very critical time. It would be downright irresponsible for any government to open itself to such external pressure for a relatively small amount of development assistance, as little as USD 95 million per year.

The MCC draft, as it stands at present, would enable the US to adopt similar measures without incurring any liability for resulting loss or damage. Given the implications of the MCC for the lives of hundreds of thousands of individuals, the ability to walk away without incurring any liability raises serious legal, economic, social and other issues.

Q. Are you saying that the MCC provides explicit immunity to the US, encouraging total irresponsibility in this agreement?

A. The MCC explicitly provides immunity to the Government of the USA, the MCC, its employees and contractors for a range of actions and omissions. (Article 6 Section 6.8) “MCC is a United States government corporation, acting on behalf of the United States Government in the implementation of the Compact.

MCC and the United States Government assume no liability for any claims or loss arising out of activities or omissions under this Compact”. ‘The Government agrees that MCC and the United States Government or any current or former officer or employee of MCC or the United States Government shall be immune from the jurisdiction of all courts and tribunals of Sri Lanka for any claim or loss arising out of activities or omissions under this Compact’.

Should the US Government or the MCC decide to walk away from their commitments under the MCC at any stage of the five year Compact period, for whatever reason, they would assume no liability for any claims or loss.

The immunities will apply to any loss or damage caused in the course of implementing the Compact.

It is not only the US Government and the MCC that would enjoy immunity from the jurisdiction of our courts and tribunals for loss or claims arising out of the activities under the Compact but also current and former officers and employees of the US and the MCC. We note that all these provisions protect only the US side.

Q. The MCC is in fact a treaty isn’t it and not a contract?

A. The fact that the MCC is a treaty does not leave room for any degree of complacency. A treaty is different from a contract. A treaty is governed by international law. It must be negotiated to strike an equitable balance between the parties. The recourse in the case of a dispute with regard to a treaty is international courts and tribunals. In comparison, a contract is governed by domestic law and is enforced through domestic courts.

The international law on treaties has mostly been codified by the Vienna Convention on the Law of Treaties 1969, which codifies the rules and procedures for creating, enforcing, amending, and interpreting treaties.

As one of the earliest manifestations of international relations, treaties are recognised as a primary source of international law. A treaty can be labelled under different names, compact, convention, agreement, covenant, accord, protocol, etc. What is important is whether the agreement is intended to create international legal rights and obligations.

Q. Who can conclude a treaty?

A. Only the Head of State, the Head of government or the Foreign Minister or someone duly authorised by one of these entities could conclude a treaty on behalf of a State. Thus it is not possible for an official or a Minister, to conclude a treaty without proper authorisation, which is termed ‘Full Powers’. Treaties are binding at international law. International law requires that once entered into, a treaty must be implemented faithfully by the parties. It is not an excuse to argue that domestic legal constraints prevent the implementation of a treaty solemnly concluded.

Article 26 of the Vienna Convention on the Law of Treaties, which substantially reflects customary international law states, pacta sunt servanda, “Every treaty in force is binding upon the parties to it and must be performed by them in good faith”. Article 27 states, Internal law and observance of treaties, “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. This rule is without prejudice to article 46”.

Q. If there are domestic legal constraints what does one do when faced with a prospective treaty?

A. If domestic legal constraints exist, it is for the party concerned not to enter into the treaty in the first place. Or else the domestic legal framework can be brought in line with the provisions of the intended treaty. Usually, the practice is for this to be done prior to the conclusion of the treaty. Once a treaty has been concluded, it is not possible to plead that even the Constitution is a constraint without incurring adverse international legal consequences.

We must clearly understand this, once concluded, a party cannot simply walk away from a treaty. Once concluded a Treaty binds the State. Governments come and go. But the State remains bound. A treaty remains binding unless it is either terminated in accordance with its own provisions, customary practice or modified/amended. Thus it would not be possible for Sri Lanka to walk away willy-nilly from the MCC, or from any other treaty, once it becomes party to it.

Q. What would happen to Sri Lanka if there is failure to comply with the provisions of a treaty?

A. It could result in the activation of sanctions incorporated in the treaty itself, or a dispute resolution provision being triggered. Some treaties contain dispute resolution mechanisms, including judicial and arbitration provisions. The party breaching its obligations can attract retaliation. Unilateral retaliation for the breach of a treaty provision can take different forms such as the imposition of economic and political sanctions, denial of the benefits intended under the treaty, suspension of cooperation, and exclusion from international initiatives.

It also runs the risk of not being taken seriously by international partners. The US has not been reluctant to impose sanctions on many countries that have incurred its displeasure.

Q. Where does the US stand with regard to the Vienna Convention on the Law of Treaties?

A. The United States has signed but not ratified the Vienna Convention on the Law of Treaties (VCLT). Sri Lanka has not even signed it. But it is widely accepted that the VCLT is reflective of international custom.

As a treaty, if concluded, the MCC should be registered with the United Nations in accordance with Article 102 of the UN Charter.

1. “Every treaty and every international agreement entered into by any Member of the United Nations after the present Charter comes into force shall as soon as possible be registered with the Secretariat and published by it.

2. No party to any such treaty or international agreement which has not been registered in accordance with the provisions of paragraph 1 of this Article may invoke that treaty or agreement before any organ of the United Nations.”

This provision has been effective since the Charter came into force in October 1945 and the UN has been performing this Charter mandated function since then.

Member States of the UN have registered with the UN over 55,000 bilateral treaties, covering almost all aspects of international interaction, including human rights, terrorism, the seas and oceans, disarmament, outer space, the environment, organised crime and money laundering, cultural cooperation, development assistance, border demarcations, etc.

In addition, over 555 multilateral treaties, most deposited with the UN Secretary-General, are also registered with the UN. There is even a multilateral treaty on white slavery inherited from the League of Nations. (International Agreement for the Suppression of the White Slave Traffic, signed in Paris on May 18, 1904 (later registered with the League), amended by the Protocol signed at Lake Success, New York, May 4, 1949.

These treaties provide a rich framework of law governing international relations. Today this vast body of international law has been placed on the internet and can be accessed by clicking a few buttons on a computer.

Q. Does a treaty being registered with the UN enhance the legal quality of that agreement?

A. The widely accepted view is that registration per se does not add to the legal quality of an Agreement while non-registration would preclude a treaty being invoked before a UN tribunal. Sri Lanka has concluded over 900 treaties. It would be interesting to see if the MCC would be registered with the UN if it were to be concluded.