Pacific Rim Ruling Threatens El Salvador’s National Sovereignty

On June 1, the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) issued a much-anticipated ruling in the case brought by Canadian transnational Pacific Rim against the government of El Salvador for failing to approve its mining permit. While dismissing Pacific Rim’s claims under the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), the tribunal ruled that the case could proceed under El Salvador’s own 1999 Investment Law, which allows foreign companies to sue the Salvadoran government though the same international tribunal.

The ruling paves the way for Pacific Rim to proceed with its efforts to undermine El Salvador’s de facto ban on metallic mining, in effect since 2008, as well as weaken the growing campaign to make El Salvador the first nation on the planet to legally ban gold mining. [3] The anti-mining movement in El Salvador has broad support from civil society along with the Catholic Church and left and right political parties, due to widespread concerns about the environmental risks of mining in a country that is already one of the most environmentally-degraded in the hemisphere. Credit: esnomineria.blogspot.ca

Pacific Rim received a permit in 2002 to begin exploratory work on a massive gold mine in the north-central department of Cabañas. Faced with growing community and then national opposition, including from the conservative government of Tony Saca, the company failed to complete the technical steps required to secure a permit for mining operations. It then sued the government for $200 million under DR-CAFTA, alleging that the government’s failure to approve an extraction permit had violated its investors’ rights.

The case was the first challenge to a sovereign government’s environmental policy under DR-CAFTA. Leftist President Mauricio Funes, elected in 2009, pledged that no metallic mining permits would be issued during his five-year administration. The project would represent the first new precious metals mine in El Salvador since before the start of the civil war in the early 1980s.

As Tim’s El Salvador Blog [4] reminds us, the tribunal has not yet ruled on the merits of Pacific Rim’s case against El Salvador, or on El Salvador’s mining policy. The decision is only about the legal jurisdiction under which the case can now proceed.

The tribunal denied jurisdiction under DR-CAFTA effectively on a technicality—because Pacific Rim, a Canadian company which set up a last-minute subsidiary in Nevada to file the case, lacked proper standing (Canada is not a party to DR-CAFTA). Last year, the tribunal dismissed another mining company claim (from the Commerce Group) against El Salvador on a different technicality, because the company had not fully exhausted its domestic legal remedies. Still, as Tim notes, it’s somewhat satisfying that the mining companies are batting zero for two to date in trying to bring their claims under DR-CAFTA.

What the Pacific Rim case reveals is that the problem lies deeper than DR-CAFTA--in this case, in a policy decision made by El Salvador’s past neoliberal government back in 1999 to forfeit its own democratic processes in the interest of attracting foreign capital. As Public Citizen and the Sierra Club [5]have noted: “That poor countries have been pushed to offshore their very judicial systems—through trade pacts’ investor-state enforcement systems and through investment laws like El Salvador’s—shows that the world needs a fundamental rethink of the way we regulate foreign investment.”  

Mesa press conference. Credit: esnomineria.blogspot.caThe National Roundtable Against Metallic Mining [6] (known as the Mesa), a coalition of community, environmental, and human rights organizations that has led the anti-mining struggle in El Salvador, has called on President Funes to eliminate Article 15 of the 1999 Investment Law, which allows foreign corporations like Pacific Rim to bring suits under international jurisdiction. They also want Funes to push forward a national ban on metallic mining, based on a legislative proposal by his FMLN party that has languished in the Legislative Assembly (where the FMLN controls only 37% of the seats, but could potentially prevail on an issue that has received broad-based non-partisan support).  

A Strategic Environmental Assessment [7]completed by a Spanish consulting firm last September for the Funes government emphasizes the risks of environmental damage and social conflict due to metallic mining and the government’s lack of capacity to effectively regulate the industry. (The government has not released the study, which has been unofficially leaked by the Mesa.)

The Mesa is concerned that the Pacific Rim ruling may have a chilling effect on the proposed mining ban, especially due to the government’s mounting litigation costs ($5 million to date) which the tribunal refused to waive. As anti-mining activists have noted, these funds could have been used to educate 140,000 adults under the government’s National Literacy Program--a tough choice for a cash-strapped administration in a country where two-thirds of the population live on less than $1 a day.

International solidarity activists protest. Credit: IPS-DC.org.

Still, the Funes government plans to vigorously defend the Pacific Rim case and is convinced it can win on the merits. International solidarity groups, who protested the ruling [8] outside Pacific Rim’s Vancouver headquarters last week, have also vowed to continue their efforts.

They point to a victory in a similar case in the early 2000s, where U.S.-based Bechtel sued Bolivia for $25 million over the cancellation of a water privatization contract following a popular uprising against sky-rocketing water rates. After a strong international solidarity campaign, Bechtel withdrew its claim for a token settlement. The Bolivian government is now seeking to extricate itself from agreements that allow foreign investors to bypass domestic courts and bring their claims to international tribunals, setting a useful example for El Salvador.

Emily Achtenberg is an urban planner and the author of NACLA’s weekly blog Rebel Currents, covering Latin American social movements and progressive governments (nacla.org/blog/rebel-currents). She visited El Salvador in June with the Cambridge–El Salvador Sister Cities delegation.