Plantains, Palm Trees and Renegotiated Rubber Concessions Agreements

Rubber tapping, a senior expatriate employee at the Firestone rubber plantation in Liberia once pointed out to me, is not an extractive industry. Diamonds, iron ore and timber are all endemic to Liberia. Rubber trees are not. About 80 years ago rubber tree seeds were imported and planted. When it comes to concessions agreements, should this matter? I’m inclined to say no. The soil at Harbel is excellent. Firestone needs Liberia, just as much as Liberians need Firestone–even though not everyone wants to admit it.

When President Sirleaf was elected she promised to review every contract signed under the highly corrupt head of the former transitional government, Gyude (pronounced JOOD-ee) Bryant. Bryant and his friends almost certainly received kickbacks in exchange for the extremely pro-business agreements his government signed. His government probably didn’t have the authority to sign many of these contracts because the 2003 Comprehensive Peace Agreement that ended the war said that his government’s primary mandate was only to perform “normal State functions” (Article XXII).

Last year the government used that argument to renegotiate a Mineral Development Agreement for iron ore with ArcelorMittal. (A Global Witness report titled “Heavy Mittal” [love it!] on the inequity of the original MDA is available here.)

Continuing with her promise, a few days ago the government and Firestone Liberia signed an Amended and Restated Concession Agreement that will last for 36 years. The new agreement appears to address most of Global Witness’ complaints about the 2005 contract (scroll to second to last paragraph). In addition to a number of committments Firestone makes to expand its provision of social services to the families of workers, below are important ways that the new agreement differs from the 2005 one:

• New transfer pricing provisions for dry rubber and latex based on international indices
• Firestone’s income tax rate is now 30%, up from 25%
• Firestone agreed to complete a rubber wood factory

My guess is the first provision is the most important. The original agreement “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,” according to Global Witness. This could have allowed Firestone Liberia to sell rubber to a Firestone subsidiary at one penny per ton, for example, and then only pay taxes based on that. The revised contract says essentially that taxes will be based on the international price of rubber.

I always find it interesting that Liberian news articles on Firestone, ArcelorMittal, and Chinese investors tend to emphasize social services that the companies will provide, and not contract provisions that are probably more important, like those that relate to taxes. This The News article on the new Firestone agreement is a perfect example.

The best source of information on this new agreement is this Firestone press release. Based on other news articles I have read, it seems fair and accurate. I am hoping that Global Witness will publish their thoughts on this new agreement.