CAFTA’s Casualties: El Salvador Battles a Multinational Corporation Over Mining Rights

Michael Busch: The Trouble with CAFTA

AS EL Salvador transitions from decades of conservative rule to the administration of leftist president Mauricio Funes, the country faces an international showdown that will likely determine how free trade agreements impact Central America’s future. Pacific Rim Mining Corporation, a Canadian multinational firm, has brought suit against the government for its refusal to allow exploitation of gold deposits in El Salvador’s rural north. Should Pacific Rim succeed in securing the $100 million settlement it seeks, a troubling precedent would be set–one that privileges private interests over national sovereignty.

Pacific Rim initiated arbitration proceedings against El Salvador with the World Bank’s International Center for Settlement of Investment Disputes (ICSID) on April 30. The corporation argues that El Salvador violated its Chapter 10 responsibilities under the Central American Free Trade Agreement (CAFTA) by refusing to issue exploitation permits after Pacific Rim filed an Environmental Impact Assessment (EIA) in accordance with national law. The corporation insists that their operations pose no threat whatsoever to El Salvador’s ecological stability and public health.

Social activists and environmental experts disagree. They contend that Pacific Rim’s EIA offers little evidence supporting the company’s “green mining” claims and that it serves as a smokescreen to obscure the adverse socioeconomic impacts gold mining is likely to produce in the small, densely populated nation. Thus far, the social movement against precious metal mining in El Salvador has succeeded in compelling the government to resist Pacific Rim’s advances. But questions remain concerning Funes’ resolve to stand defiant in the face of international pressure.

Pacific Rim began exploring the country’s potential for gold exploitation nearly seven years ago, charting a vein system that covers considerable portions of El Salvador’s northern reaches. The corporation commenced operations at the invitation of the government’s Ministries of the Economy and the Environment, which issued exploration permits in 2002 under the neoliberal administration of Francisco Flores. Since then, the corporation has identified some twenty-five sites for gold extraction across seven national departments, and invested upwards of $80 million in the process.

As exploration increased, however, so did the alarm of environmentalists and the Salvadoran population at the potentially adverse effects that gold mining could have on the country. Of chief concern, critics point to the threat of water and soil contamination from chemical residue in the wake of mining operations. Miners use cyanide-laced water to extract gold from subterranean rock, which, experts contend, makes its way back to reserves tapped for drinking. That all of Pacific Rim’s sites are located along the country’s longest river, the Lempa, has environmentalists especially worried.

These concerns were met with popular unrest that spawned a social movement, which has successfully attracted the attention of the Salvadoran government and garnered broad national and international support. With public opinion polls showing a clear majority in opposition to gold mining, ARENA (the ruling party at the time) refused to issue the company permits to begin extracting gold from underground deposits.

With its prospects at gaining permits grinding to a standstill within the government bureaucracy and opposition forces gaining the advantage locally, Pacific Rim filed a notice of intent in December 2008 to bring El Salvador in front of an international arbitration board to resolve the dispute. Specifically, the corporation claimed that El Salvador violated the spirit of nondiscrimination enshrined in Chapter 10 of the CAFTA agreement by allowing domestic companies to pollute while denying the same privilege to Pacific Rim.

CAFTA, which was signed by El Salvador in 2006, allows multinational corporations to sue Central American governments for cash compensation when their potential for profit has been undermined. But because Canada is not a signatory to CAFTA, Pacific Rim is not technically entitled to Chapter 10 protections as it claims. Nevertheless, the corporation routed the lawsuit through a backdoor: its American-based subsidiary Pacific Rim Cayman LLC.

EARLY INDICATIONS suggest that the new Funes administration will pursue a compromise solution instead of risking a costly settlement. “We’re not in a position to be losing litigation. That money should be allocated to social programs,” El Salvador’s Secretary of Technology Alex Segovia recently noted. Indeed, if the arbitration board rules in Pacific Rim’s favor, El Salvador would be profoundly crippled by the $100 million payout asked by Pacific Rim. Perhaps more troubling still, the verdict would send a signal to other multinationals in Central America that the law sides with corporate interests over the protection of local populations.

Nevertheless, a negotiated settlement offers equally disturbing possibilities. The most likely would be an amendment to environmental and mining laws, allowing foreign corporations easier access to El Salvador’s natural resource deposits. In all likelihood, the FMLN-sponsored anti-mining legislation would be shelved indefinitely and opportunities for peaceful resolution of local concerns increasingly foreclosed.

Pacific Rim’s lawsuit–along with the violent repression of recent protests in Peru–represents the latest example of failure by U.S.-sponsored trade regimes to bring prosperity and progress to the region. American policymakers acknowledge as much, as bilateral trade agreements with Panama and Colombia continue to stall and pressure to amend the North America Free Trade Agreement builds.

Yet the hope that the social movement against mining in El Salvador would find an ally in Barack Obama has been unrealized. During the campaign, Obama, who voted against the passage of CAFTA as a senator, spoke out passionately on the campaign trail against foreign trade agreements that privileged economic gain over the welfare of local populations under threat. But as president, Obama has failed to meaningfully act on an issue he himself acknowledges desperately demands attention and change.

The president reportedly will outline a new vision of equitable trade in a major speech later this year at the Group of 20 meeting in Pittsburgh. There, Obama will likely forge the plans for a free-trade architecture that would meet the president’s goal of preventing foreign corporations from “gaining economic advantage by destroying the environment” and “make clear that fair laws and regulations written to protect citizens…cannot be overridden at the request of foreign investors.”

But, by then, it could be too late for Salvadorans affected by Pacific Rim’s activities. If Funes and other like-minded “partners” throughout the region fail to stand up for these communities under threat, a regrettable precedent will be set–one that would invest even Obama’s most eloquent rhetoric with the hollow timbre of false promises.

Michael Busch is Research Associate at the Ralph Bunche Institute for International Studies and a doctoral student in political science at the Graduate Center, City University of New York.