for El Salvador’s
gold – in Washington
use by two transnational corporations of rules in a ‘free trade’ agreement
between the US and
six Central American countries to sue the El
Salvador government before a tribunal in Washington for refusing
permits for gold mining highlights the perils of such agreements for
this year, I had the opportunity to travel to Cabañas,
El Salvador, to meet with some of
the bravest and most successful environmental activists in the world.
Ordinary villagers in this remote area of the country have joined with
religious groups, research centres, and others to take on the powerful
international mining companies that are seeking to plunder their country’s
gold. So far, the activists have been winning this David-vs.-Goliath
fight. Two successive Salvadoran governments have denied permits for
gold mining on environmental and human health grounds.
18>In early August, however, these activists suffered a setback –
not from their own government, but from an obscure tribunal in Washington, DC.
Two transnational mining companies have used rules in the ‘free trade’
agreement between the United States
and six countries in the region to sue the government of El Salvador. They are demanding hundreds
of millions of dollars in compensation for the denial of mining permits.
The first company to file suit, Pacific Rim,
has just won the first stage of the proceedings by overcoming the Salvadoran
government’s effort to get the case thrown out on jurisdictional grounds.
tribunal’s decision to give the green light to this controversial case
should send shudders down the spines of advocates for the environment,
community rights, and democracy. The type of investment rules employed
by Pacific Rim to mine for gold in international tribunals are contained
in thousands of bilateral investment treaties around the world and more
than a dozen existing and pending US trade agreements. What’s happening
to El Salvador
could happen almost anywhere, despite the struggles of activists to
defend their environmental rights.
struggle for resource rights in El
National Roundtable on Metallic Mining of El Salvador (La
Mesa) is a broad group of community organisations, human
rights NGOs, church groups, and research centres that have been working
courageously – several of their members have been murdered, and many
have received death threats – to prevent gold extraction in El
Salvador. Among other environmental
impacts, this gold mining would pollute the already-scarce water basins
with cyanide. The European Parliament recently banned this activity.
year, La Mesa succeeded in persuading the Salvadoran government
to halt gold extraction by denying permits to the Canadian-based Pacific Rim and the US-based Commerce Group and Sebastian
Gold Mines (Commerce Group). The activists bolstered their case with
studies that demonstrate the lack of satisfactory environmental impact
assessments, in the case of Pacific Rim,
and the already poor environmental record of Commerce Group.
being denied the permits, the companies took their quest for gold to
Washington. Both are suing El Salvador at the World Bank’s International Center for Settlement of Investment Disputes
(ICSID). They are demanding $100 million each in damages under the investment
chapter in the Central America-Dominican Republic-United States Free
Trade Agreement (CAFTA-DR), a treaty that went into effect in 2005 with
seven signatories, including El
round to Pacific Rim
2 August ruling of the ICSID tribunal was in response to the Salvadoran
government’s arguments, presented in January 2010, which invoked the
CAFTA-DR rule that permits ‘a preliminary objection to investors’ claims
to protect governments from frivolous, but costly, trade pact investor
laid out three basic arguments:
Pacific Rim did not have the right
to the mining concession. Although the company had obtained an exploration
permit, it did not have an automatic right to extraction.
Pacific Rim did not provide adequate facts to back up its claim that
El Salvador had breached the company’s
right to ‘national treatment’ and ‘most-favoured-nation treatment’.
These provisions are designed to prevent discrimination against foreign
investors in favour of domestic investors, and there was no evidence
that the government would have granted the permits to a local mining
company under similar circumstances.
Pacific Rim did not have the right under CAFTA-DR to pursue its claim
through international arbitration because the company had initiated
a parallel claim under El Salvador’s
National Investment Law.
undemocratically appointed ICSID tribunal rejected these arguments.
On 3 August, Pacific Rim President and CEO Tom Shrake expressed optimism
that the ruling may prompt the Salvadoran government to change its mind
about the permits. ‘It is a positive and crucial step in the CAFTA process
for PacRim,’ Shrake said. ‘We are, however, reticent to celebrate, as
we believe a more productive outcome is possible for both the Salvadoran
people and foreign investors. With this phase of the arbitration now
completed, we hope to resume a mutually beneficial dialogue with the
government of El
Salvador to resolve the impasse.’ Pacific Rim clearly wants to go for the gold and not just
for compensation from ‘damages’ from the legal suit.
Salvadoran group responded, however, that ‘the tribunal’s decision does
not mean that Pacific Rim is necessarily any closer to securing mining
permits – only that their ICSID claims will live to see another day.’
the Salvadoran government is continuing to fight the suit. On 3 August,
the government questioned Pacific Rim’s standing to bring claims under
CAFTA-DR, since it’s not even a US
company. Based in Vancouver, Canada, the company created a US subsidiary in order to take advantage of the
investor rights under the US
trade agreement. Governments are supposed to have the authority to deny
the benefits of such agreements to a foreign investor that does not
have ‘substantial business activities’ in a country that is a party
to the agreement. The Salvadoran government also claims that Pacific
Rim changed its nationality years after the legal dispute
arose, so it can’t invoke the free trade agreement regarding a pre-existing
Pacific Rim’s lead, US
company Commerce Group presented a notice of intent to file a similar
case against El Salvador
in March 2009, and an ICSID tribunal was formed on 1 July 2010.
Group is notorious for alleged environmental violations related to gold
and silver mining projects that it operated in the past in different
localities in El Salvador. Several
Salvadoran organisations have repeatedly denounced the company and demanded
that the country’s attorney general investigate charges that Commerce
Group has polluted the San
harming the people of the locality of Santa Rosa de Lima. One environmental
study indicated the presence of metals like aluminium, zinc, iron, manganese,
and nickel demonstrated the ‘presence of acidic drainage provoked by
Commerce Group, which affects mainly children and women’. According
to the study, ‘60% of the population experiences symptoms of weakness,
fatigue, lack of appetite, nausea, yellowed skin, rashes and mental
environmental charges will not likely carry much weight at the ICSID
tribunal, however. The proceedings are based on compliance with the
CAFTA-DR investment rules – national treatment, most favoured nation,
minimum standard of treatment, and compensation for ‘indirect expropriation’
– and not compliance with environmental standards.
on the US
to US-based public advocacy group Public Citizen, the recent Pacific
Rim ruling is so controversial that it could help fuel demands for reforms
of international investment rules, not only in CAFTA-DR but also other
US trade agreements.
a senator and on the presidential campaign trail, Barack Obama was critical
of the existing trade and investment model. Obama opposed CAFTA-DR because
it ‘does little to address enforcement of basic environmental standards
in the Central American countries and the Dominican
Republic’. In 2008, during his
campaign, Obama committed to making changes in investment rules, responding
to a questionnaire on trade policy saying that ‘with regards to provisions
in several FTAs [free trade agreements] that give foreign investors
the right to sue governments directly in foreign tribunals, I will ensure
that foreign investor rights are strictly limited and will fully exempt
any law or regulation written to protect public safety or promote the
the Obama White House is now pushing for congressional approval of several
trade agreements negotiated by the Bush administration that contain
investment rules nearly identical to those in CAFTA-DR.
gold mining cases against El
Salvador should help reveal the dangers
of investment rules that elevate the narrow interests of private foreign
investors above those of the general public and the environment. Civil
society organisations and policymakers around the world are exploring
alternative approaches that would promote a more equitable balance between
corporate interests and the broader public interest.
La Mesa’s Vidalina Morales has put it: ‘Pacific Rim has assailed our
country, breaching environmental requirements, undermining laws, provoking
environmental damage, economic losses, social conflict and corruption,
and it should be judged for that. But the roles have been inverted,
and it is the company that sues the country and the perpetrator who
sues the victim.’ As a result, El Salvador, one of the poorest countries in the
hemisphere, must spend millions of dollars defending against two expensive
lawsuits in Washington,
money that otherwise could have gone towards poverty alleviation. This
terrible irony makes a change in those investment rules imperative.
Pérez-Rocha is an associate fellow of the Global Economy project at
the Washington-based Institute for Policy Studies. This article is reproduced
from the Foreign Policy In Focus website <www.fpif.org>.
World Resurgence No. 238/239, June-July 2010, pp 13-14