Mittal Steel did the right thing – will Firestone?

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Last year I worked on Global Witnesses' 'Heavy Mittal' report. It was depressing work. Mittal exploited Liberia in my opinion, and in meetings could offer little by way of justification.

I admit I was pleased earlier this year to review the revised agreement between Mittal and Liberia. It's probably not much of an exaggeration to say (although Global Witness are too modest to do so) that Liberia took 'Heavy Mittal' and pretty much renegotiated on the basis of what it said. Candidly, knowing that Liberia is better off as a result is, for me, a career highlight. The new contract is not perfect, but it's a massive advance. I congratulate the team at Global Witness who worked on this. They are Patrick Alley, Natalie Ashworth and Sofia Goinhas and I cannot do better than reproduce the press release on this work they issued yesterday:

Mittal Steel, the world's largest steel company, has moved one step closer to living up to its corporate social responsibility pledges by renegotiating its deeply unfair $900 million iron ore concession agreement with war-ravaged Liberia. However, Liberia's other major multinational investor, rubber giant Firestone, must follow suit as it renegotiates its 2005 rubber agreement with the Government of Liberia.

Mittal's deal was signed just three months before democratic elections with the notoriously corrupt transitional government which took power at the end of Liberia's devastating civil war. As Global Witness revealed in its October 2006 report "Heavy Mittal", the deal was heavily imbalanced in favour of the company.

The revised contract, agreed by Mittal and the new, elected government, is soon due to be ratified by Liberia's National Legislature. Improvements include:

- The old contract allowed Mittal to set the price of iron ore, thereby giving it control of royalty rates and tax payable, and encouraging transfer pricing [abuse]. The new contract is based on market prices.
- The new contract removes a five-year tax holiday for Mittal which could have been extended indefinitely under the old contract.
- Mittal loses the right to take control of Liberia's two major economic public assets, the port of Buchanan and the railway to Yekepa.
- Mittal will no longer be exempted, via a "stabilisation clause" from any new human rights or environmental laws passed by Liberia. However, the agreement still takes precedence over Liberian law on income tax, royalties and other payments due to government.
- The capital structure of the concession remains as before but under the new agreement the parent company is responsible for liabilities incurred by the operating company in Liberia.
- Mittal's right to take over new land for the concession is now more balanced with the rights of existing property holders.

Despite these improvements, the contract is still covered by a confidentiality clause which will make it very hard for Liberian citizens to monitor revenue flows from Mittal and ensure the government uses the money wisely to reduce poverty.

"Predatory and unfair investments in natural resources in developing countries, especially post-conflict countries, set back development. In countries coming out of wars that were fuelled by natural resources, deals like this are playing with fire. It is good that the Liberian government brought Mittal back to the negotiating table, and good that Mittal renegotiated the contract, but it needs to be transparent," said Patrick Alley, Director of Global Witness.

Firestone Natural Rubber Company LLC and Firestone Plantations Company who own the world's largest industrial rubber plantation in Liberia and are now part of Japanese Bridgestone, chose in 2005 to sign with the transitional government an agreement which still had twenty more years to run.

The revised agreement not only allows Firestone to set the price of rubber in the context of its own contract, thus creating the conditions that could enable transfer pricing and allow the company control over the amount of taxable income, but also sets the benchmark for all rubber in Liberia. Unlike the original Mittal contract, the government does not even have an equity share in the investment, so that taxes and royalties are its only financial benefit. This is particularly significant as rubber is Liberia's biggest export and Firestone is the country's biggest producer and largest private sector employer. According to a 2006 UN report, Firestone admitted buying rubber from plantations illegally occupied by ex-combatants and who have also been linked to serious human rights violations. Allegations of child labour and slavery-like conditions in Firestone's plantation in Liberia led to the International Labor Rights Fund (ILRF) filing a class action lawsuit in November 2005 on behalf of the company's workers. The case is still pending in an Indianapolis court.

"This is yet another example of a transnational corporation pursuing profit at the expense of a vulnerable nation which has only recently emerged from devastating conflict," said Alley. "Firestone must follow Mittal's example and agree a fairer deal for Liberia."