The Pac Rim decision: What are the lessons for TPP?
by Bill Waren, international trade analyst
On October 14, 2016, an Australian–Canadian mining company OceanaGold/Pacific Rim (Pac Rim) lost a $301 million dollar suit against the people of El Salvador before a tribunal associated with the World Bank. Pac Rim alleged that El Salvador violated investor rights when it was not able to open a dangerous cyanide-leach gold mine at the basin of the Lempa River.
But there were no winners in this litigation, which dragged on for seven years, and forced El Salvador to lay out over $12 million to cover litigation costs. The tribunal ordered Pac Rim to pay $8 million to El Salvador for the cost of their lawyers, which may be very hard to collect. But El Salvador will have to pay its share of the full cost of the arbitration itself. Nor is El Salvador being compensated for the social and environmental costs of Pac Rim’s mining exploration activities.
But there were no winners in this litigation, which dragged on for seven years, and forced El Salvador to lay out over $12 million to cover litigation costs.
The three-member arbitration panel which issued the decision was authorized by the World Bank’s International Centre for the Settlement of Investment Disputes and an unfortunate Salvadoran law that closely resembles the investment chapter of the U.S. — Central American Free Trade Agreement, under which Pac Rim initially brought suit but was dismissed on strictly jurisdictional grounds.
If El Salvador had lost and was hit with a damage award of millions of dollars, it could have broken the public budget and weighed upon Salvadoran taxpayers for years. Many countries have cut humiliating deals rather than pay a small fortune in lawyers’ fees and accept the financial risk of paying damage awards to global corporations that can run into millions or billions of dollars.
The story of the Pac Rim case is disturbing. As a result of public pressure stemming from environmental and public health concerns, Pac Rim was denied a permit to mine at the basin of the Lempa River by the El Salvador government — leading Pac Rim to sue. What the company ignored was that the river is the source of more than 60 percent of the water in El Salvador, the second most water-starved country in our hemisphere. The mine threatened not only the water supply but also the water quality in a country whose surface waters are already contaminated from exhausted Salvadoran mines and ongoing mining activity in the Lempa River basin in neighboring Honduras and Guatemala.
Salvadorans opposed to the Pac Rim gold mine were threatened and attacked. For example, in three separate incidents in 2009, Gustavo Marcelo Rivera was tortured and murdered, Ramiro Rivera and Felicita Echeverria were brutally killed, and Dora Alicia Recinos Sorto, eight months pregnant, was murdered and her small child injured.
The decision in the El Salvador gold mining case is a testament to the courage of the people of El Salvador who refused to back down to a predatory mining company. That said, Pac Rim should never have been allowed to engage in this kind of legalized shakedown attempt. But there is an explosion of such suits around the world.
The United Nations has documented a record high of 70 similar cases brought by multinational corporations and wealthy investors under international investment and trade agreements in 2015.
The United Nations has documented a record high of 70 similar cases brought by multinational corporations and wealthy investors under international investment and trade agreements in 2015. The total number of such claims has reached 696. The UN reports that: “By the end of 2015, a total of 444 …proceedings have been concluded, with 36 percent of cases decided in favour of the State, 26 percent in favour of the investor and 26 percent of cases settled.” Keep in mind that most settlements are likely to be on the investor’s terms.
The cost of these investor-state suits is also skyrocketing. Argentina has been hit the hardest of all as a result of a barrage of investor-state suits when a disastrous financial crisis forced a sharp devaluation of the Argentine peso. As University of Buenos Aires Professor Federico Lavopa noted last year before Mauricio Macri was elected President and began settlement negotiations with so-called vulture funds: “All in all, of the 80 billion dollars of the possible amount of compensations calculated when the peak of cases against Argentina was reached following the crisis, Argentina has so far received final rulings involving the payment of 900 million dollars.”
These suits are brought mostly under the terms of trade or investment deals like the Trans Pacific Partnership that Congress may vote on after the 2016 election. The TPP would allow firms to turn to secretive international tribunals where they can sue governments for millions or billions of dollars if environmental or other public interest regulations interfere with expected future profits.
The TPP investment provisions would discourage government action like restricting oil and gas drilling, imposing pollution controls, and limiting the use of fracking (hydraulic fracturing). TransCanada, for example, is using a similar provision in the North American Free Trade Agreement to sue the U.S. for $15 billion for stopping construction of the Keystone XL pipeline.
The U.S. model for trade agreement investment chapters like that in the TPP deal is in the economic interest of companies like Pac Rim and TransCanada. It creates a separate “court” for foreign capitalists. They can bypass domestic courts and bring suit before World Bank or United Nations tribunals that are biased. An arbitrator serving on one of these tribunals is likely to be an international commercial lawyer who may alternately serve as “judge” one day and return as corporate counsel the next. Investors are granted property and due process rights that are more broadly defined than in U.S. constitutional law or the practice of nations generally. Investors may seek awards of money damages, of unlimited size, in compensation for the cost of complying with public interest regulations.
The TPP promises more than any other recent U.S. trade deal to expose the USA to a large number of budget-busting damage awards from global corporations based in countries like Japan that are litigious and have many big investments in the United States. As the Sierra Club has documented, the TPP and its twin the Transatlantic Trade and Investment Partnership deal with the European Union would dramatically expand “the number of corporations that could follow TransCanada’s example and use private tribunals as a backdoor way to challenge and potentially undermine U.S. policies that keep fossil fuels in the ground.”
Friends of the Earth President Erich Pica summed up all that is at stake at a protest outside the World Bank against the Pac Rim suit:
Friends of the Earth and our activists across the country and around the world demand justice for the people of El Salvador. We serve as witnesses, today, to the courage of the people of El Salvador, who in the face of threats, violence and murder, carry on the struggle against gold mining that endangers the water they drink and the sustainability of their farms. We call for the closure of the World Bank’s facility for investment tribunals. And we call also for the end of unjust trade deals, including the pending Trans Pacific and Trans Atlantic agreements, which give ‘super-rights’ to multinational corporations like Oceana Gold and its predecessor Pacific Rim.
