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El Salvador is defending itself against a US$301m lawsuit filed after it blocked a mining project to protect the country’s heavy-polluted water supply. The imminent verdict will set a precedent amid a growing trend of companies suing governments when they can’t exploit their natural resources.
On 15th September, El Salvador marked 194 years since the country broke off the shackles of Spanish colonial rule. Yet, while colourful parades filled the streets of San Salvador and Google decked its front page in the country’s white and blue flag, another important anniversary cast a shadow over the celebrations. The 15th also marked a year from the final hearing in a trial which is quietly threatening the country’s hard-won sovereignty, and that of developing countries all over the world.
A verdict is still pending in the case of El Salvador vs. Pacific Rim, a Canadian mining company (bought by Australian corporation Oceana Gold in 2013), which filed a lawsuit against the Central American state for US$301m in 2009. Pacific Rim claimed El Salvador had unfairly denied its mining permit after it began an exploration process for gold mining, costing them millions of dollars in potential profits. El Salvador’s government claimed the company had failed to deliver the required environmental tests and administrative steps of land acquisition to continue. Yet, there is a more urgent issue lying behind the technicalities on which the case is being argued.
El Salvador is a densely populated country, with 295 people per square kilometre. A startling 97% of its water is currently unsuitable for human consumption and the proposed mining activity, due to take place in the northern San Isidro de Cabañas region, implied risks of contamination to the little water that remains. In 2008 public outrage over the pollution of the San Sebastián river – which was left with a distinctive orange colour after almost a decade of unchecked gold mining projects nearby – prompted then-president Antonio Saca to declare a temporary ban on issuing new mining permits.
It was a decision backed by public support: according to a survey published in July by the Central American University (UCA), just under 80% of Salvadorans continue to oppose mining in their country.
The idea that a democratic government’s decision to protect the population’s water supply could land it with a multimillion dollar lawsuit – equivalent to roughly 2% of the country’s GDP – is a tough one to swallow. It provides an uncomfortable counterpoint to the notion that we’ve come a long way from the days when the fates of many Latin American nations were being determined by masters in wealthier countries, hundreds of miles away.
Yet what’s happening in El Salvador is not an isolated event. It is illustrative of a worrying trend in international trade.
Luis Parada, now head lawyer for El Salvador’s defence, argued his first case of this kind back in 1997 when the Argentine province of Tucumán attempted to limit the price it charged residents for water and sewage services. French water conglomerate Vivendi sued the provincial government for changing the terms of a contract with its subsidiary, Aguas del Aconquija, beginning a legal battle that ended ten years later with Tucumán forced to pay the company over US$100m.
“This is one of the little-known parts of free trade agreements on the one hand, but also, more globally, of international commerce,” notes Keith Slack, Global Program Manager of Oxfam America’s Extractive Industries team. “There are these provisions in free trade agreements and in national laws that allow companies to use unaccountable, non-transparent arbitration processes, which can have a significant negative impact on a government’s ability to implement regulations or take particular action to protect the environment or public health.”
These “unaccountable, non-transparent” processes are packed into several innocuous-sounding acronyms.
To challenge El Salvador’s rejection of their project, Pacific Rim activated the ISDS – investor-state dispute settlement provisions. Written into most trade agreements these days, and due to be expanded under the massive Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP), the ISDS allows companies to challenge the decisions of governments that might be said to affect their investments in the country. The main forum for these cases, including El Salvador’s, is the International Centre for the Settlement of Investment Disputes (ICSID). It was established by the World Bank in 1966, and currently has more than 200 ISDS cases pending.
The ISDS is built into a free-trade agreement between the US and the countries of Central America. Pacific Rim initially gained access to this clause by transferring part of its business to the US, via a subsidiary. However, in 2012 El Salvador’s defence successfully argued that this transfer had occurred only after the beginning of the dispute, and was a deliberate move to take advantage of the pre-existing trade agreement. The Canadian company now stake their claim against El Salvador under Article 15 of the country’s own Investment Law, which offers investors recourse to the ICSID in case of disputes.
The system’s provision in national laws like this one was originally designed to offer a kind of insurance policy of fair treatment to companies like Pacific Rim and therefore to encourage investment in developing nations. But the ISDS is increasingly being used by companies to recoup not only lost investments, but also “expected future profits”. For those denied access to actual gold mines, the ISDS has become an appealing alternative.
In June this year, Parada told The Guardian that the system has “gone completely rogue”. “Concerning” is the word Slack chooses when asked about the power concentrated in bodies like the ICSID. The ISDS and the ICSID, he explains, are part of a legal process which “sits outside of formal democratic institutions…not necessarily subject to the same degree of oversight, accountability, and transparency which you would expect in a domestic judicial process.”
A panel of just three people from the World Bank will decide whether or not El Salvador has to pay up. Supporters of the ISDS consider this an objective system, since the host nation and investor may each choose one arbitrator, while the third must be a joint decision by both parties.
However, for Hector Berrios, anti-mining activist and co-ordinator of Movimiento Unificado Francisco Sanchez-1932 (MUFRAS-32), the size and shape of the jury is a key indicator of the unfairness of the system. “One of the judges is from England, another from France and the third from Argentina,” Berrios told The Argentina Independent. “I think it’s unfair that people who know nothing about our struggles and way of life should decide on something that affects the human rights of the Salvadoran people. Especially when their decision is based purely on [administrative] concerns”.
In the absence of a law against mining – the national legislature has failed to introduce one thus far and Slack warns that their ability to do so in future would be “significantly reduced” by a negative outcome in this case – it was the technical points of El Salvador’s Mining Law that first put the breaks on Pacific Rim’s plans in 2006. The law stipulates that in order to progress beyond the exploration stage and begin the extraction process, a company must obtain the property rights to the entire surface area of the land under which it wants to dig. Pacific Rim failed to do so, acquiring only a small area of land around the mouth of the extraction site, and also failed to provide the results of its environmental feasibility study.
These are the legal points in favour of El Salvador. Against them is another technical principle developed by the prosecution from the country’s Investment Law, and requests that the jury consider “more deeply” the meanings of the country’s Mining Law.
The threats to water access, the negative effects of mining activity on the environment, and the will of the Salvadoran public, are therefore effectively excluded from the ICSID’s deliberation.
Faced with a process that is both opaque and seemingly independent of environmental concerns, the likelihood that anti-mining activists like Berrios can have an impact on the case’s outcome may seem minimal.
Yet MUFRAS-32 and other local and national NGOs have sustained a fiercely active campaign against both the mining industry and Oceana Gold’s lawsuit. They celebrated this year’s Independence Day in San Isidro, Cabañas with the slogan, ‘Get out of El Salvador, Oceana Gold!’. Around 800 people gathered together to play games with their children, create artworks, listen to music, and watch theatre and poetry recitals, all in the name of a collective rejection of mining projects in their country.
The group’s central concern is encouraging economic alternatives to extractive industries, which it does not view as a viable option for El Salvador, as well as raising public awareness of environmental issues and human rights. Since 2009, however, they’ve had a new issue to contend with.
According to Berrios, the election of ex-President Mauricio Funes’ left-wing Frente Farabundo Martí para la Liberación Nacional (FMLN) marked a turning point in the country’s relationship with mining. Increased government hostility to the mining industry, and the refusal of Pacific Rim’s permit, lead the company to “change strategy”.
“From then on,” says Berrios “it wasn’t just lobbying and financing the campaigns of right-wing politicians like it was before. First, they opened the lawsuit against us at the ICSID. Then, they launched a terror campaign in our community.” Environmental activists began to receive “death threats, kidnapping threats, calls in the middle of the night and threats to our families. I would get calls in the middle of the night saying they know where my daughter goes to school, where my wife is, and that they’re going to assassinate her if I don’t leave town.”
In 2009, three of Berrios’ friends, fellow anti-mining activists Marcelo Rivera, Ramiro Rivera, and Dora Sorto, were murdered, in three separate incidences which many, including Berrios, consider to be a result of their activism. Though it has not been proven that the violence is related to the mining industry, the Salvadoran Human Rights Ombudsman, Oscar Luna, stated that he believed the individual acts of violence in Cabañas were inconsistent with the region’s history and “very probably related to each other, thus enabling us to infer that they are also linked to the victims’ work in defence of the environment”.
For Keith Slack, the worrying increase in violence and community tensions is consistent with the impact of mining projects on countries around the world. “In countries like Peru, for example, there’s been a lot of conflict and violence around mining projects,” he notes. “The amount of money that people stand to make from mining can drive conflict. It can cause people to try to push projects forward even when there is strong opposition.”
Map by The Observatory of Mining Conflicts in Latin America.
Oceana Gold’s purchase of Pacific Rim once again lead the company to change tack, adopting what Berrios calls a “softer and more subtle permanent campaign”. This month, the company launched a small initiative in San Isidro, going door to door to persuade residents of the benefits of mining. They also pay locals to campaign for them. “Obviously work is hard to come by in our country. If you have a job you thank god for it,” explains Berrios, “So they come and offer jobs – part time jobs. And they start giving classes in English, or computing, covering up all the awful things they want to do to our community with an illusion of social responsibility. For me that’s not social responsibility. It first has to guarantee human rights and in this case they’re threatening our human right [of access to water], not only of those here in San Isidro but of all Salvadorans.”
Though wealthier countries have been taken to court under the system – the US has had to defend itself through the ISDS under NAFTA, a trade agreement between the US, Mexico, and Canada – most lawsuits are filed against developing countries. “I would have to assume,” says Slack, “that companies feel like they have a better chance [against these countries] because they have more money to throw at the problem and they can hire better lawyers than the government.”
This imbalance of corporate-government powers has become a particular problem across Latin America and Africa, where governments are “really out-matched in terms of their legal ability to defend themselves”.
This has subsequently deterred several developing countries from pursuing environmental policies recommended by the Inter-American Commission on Human Rights. Internal documents obtained by activists in Guatemala under the country’s Freedom of Information Act revealed the weight of this risk on the government’s decision to allow the controversial Marlin gold mine, owned by a subsidiary of Canadian mining giant Goldcorp, to remain open in 2010 .
Berrios argues that the current trade and economic policies pursued by El Salvador are a mistake for developing countries, not only because of the inclusion of the ISDS in its Investment Law and free trade agreements, but also because of the power imbalance implied in international free trade in the first place.
“These types of negotiations are done between states in an asymmetrical way with an uneven balance of political and economic power,” he explains. “It’s transnational companies which benefit more than countries like El Salvador.” Alongside free trade agreements, Berrios highlights “various neoliberal policies” such as the dollarisation of El Salvador are factors which help to create “this framework which allows transnational companies to threaten the human rights of populations and submit states to international trials, trampling the sovereignty and self-determination of the people.”
For now, unable to extricate itself from this framework in the immediate future, El Salvador must focus on the outcome of the case at the ICSCD. MUFRAS-32 has run a letter writing campaign, sending messages from thousands of Salvadorans to the institution, in an effort to “inform the three people who will make the decision as well as possible”.
The verdict, initially expected before the year’s end, may now be pushed back to 2016. It’s hard to say why deliberation has dragged on so long since, as Slack puts it, “there’s very little information about what’s actually happening inside the process. You’re not given any indication as to when they’ll make a ruling. It’s just basically a best guess.” That kind of timeline is unlikely to satisfy the national government, which has spent almost US$2.6 million to date in defence fees – nearly its entire environment and natural resources spending in 2013.
Whichever way the case goes, it will have a significant impact on extractive industries across Central America, as major mining companies decide if it is legally and logistically feasible for them to open up projects in the region.
More concerning, however, is what a win for Oceana Gold would mean for the relationships between countries and companies in future. The precedent set by a positive outcome for Oceana Gold would likely, according to Slack, encourage other companies to take on these cases even more, both in El Salvador and other developing countries. This would push the world further down the path it is on, in which, sheltered by obscure and undemocratic judicial processes, transnational companies have increasingly been allowed to exploit not only natural resources, but also democratic governments, for profit and in which government decisions are influenced by pressure from corporations.
On the other hand, the ISCID’s verdict could also be just the thing to steer us off this path. At a time when many countries, such as France and Germany, are opposing the inclusion of the ISDS in massive free trade agreements currently being negotiated in Europe, a win for El Salvador would be a timely confirmation of the importance of national sovereignty, human rights, and the environment.
Whatever the outcome, we ought to pay close attention to the way we’re headed.