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Press Room » Press Note

World Bank Tribunal Ruling in El Salvador Mining Case Undermines Democracy

June 2, 2012

Contact:Lacy MacAuley, (202) 445-4692, lacy@ips-dc.org
or Sarah Anderson (202) 299-4531, sarah@ips-dc.org

(WASHINGTON, DC) Institute for Policy Studies Director John Cavanagh sharply denounced a ruling by an international arbitration tribunal issued late yesterday accepting jurisdiction in a case brought by Canadian mining company Pacific Rim against the government of El Salvador.

The company is demanding more than $77 million in compensation over the government's denial of a permit for a gold mining project. The government acted in response to strong public concerns that the project could contaminate a river that is the drinking water source for more than half the country.

The International Center for Settlement of Investment Disputes (ISCID), associated with the World Bank, is hearing the case. In its ruling yesterday, the ICSID tribunal dismissed claims related to alleged violations of the U.S. trade agreement with Central America (DR-CAFTA), deciding that Pacific Rim, a Canadian-based company, did not have standing under the treaty. However, the tribunal accepted jurisdiction over claims related to violations of El Salvador's national investment law. Thus, the case will advance to the merits phase of the legal proceedings, which could drag on for years. Regardless of the final decision, it will likely result in millions of dollars in legal fees and could open the door to additional suits by other mining companies.

IPS Director Cavanagh will speak at a rally today in front of Pacific Rim's Vancouver headquarters organized by the citizens group Council of Canadians. At the rally, Cavanagh will join with hundreds of anti-mining activists from Canada and several other countries to demand that Pacific Rim drop the lawsuit.

Cavanagh said, "The world should applaud the efforts of the Salvadoran people to safeguard their country's long-term health and prosperity by becoming the first in the world to ban gold mining. Instead, this ruling is one more example of international investment rules undermining democracy in the interest of short-term profits for foreign investors."

At the rally, Cavanagh will be joined by one of the activists leading opposition to the Pacific Rim project in El Salvador, Vidalina Morales. Cavanagh interviewed Morales and other members of the diverse coalition La Mesa Nacional Frente a la Mineria Metalica (National Roundtable on Metallic Mining), as well as Salvadoran officials, for this article in The Nation. For La Mesa's response to the tribunal ruling, click here.

IPS Associate Fellow Manuel Perez-Rocha, who has also visited these communities in El Salvador, said "The tribunal's ruling just makes us more committed to working in solidarity with those in El Salvador and around the world who are facing lawsuits brought by foreign investors over legitimate environmental and other public interest policies."

Perez-Rocha is a co-author of an IPS report Mining for Profits in International Tribunals, which documents that Pacific Rim is just one of more than 40 pending "investor-state" cases related to oil, mining, and gas before the International Center for the Settlement of Investment Disputes, the most frequently used international investment arbitration tribunal. By contrast, in 2000 there were only three ICSID cases related to these extractive industries.

The increase in such lawsuits has coincided with sharp price spikes. Since January 2000, the price of gold has quintupled, from $282 per ounce to a record-breaking $1,900 per ounce in September 2011.

IPS first became engaged in this issue in 2009, when they presented a human rights award to La Mesa Nacional Frente a la Mineria Metalica, a coalition of faith, environmental, and community groups in El Salvador that has lead the fight against mining over environmental and health concerns.

In December 2011, IPS helped organize an open letter calling for the dismissal of the Pacific Rim case. Signed by more than 240 international organizations representing hundreds of millions of people, the letter was delivered to ICSID and the World Bank during a rally on December 15.

See a detailed legal timeline of the case below.

The Institute for Policy Studies (www.ips-dc.org) is a Washington, DC-based community of public scholars and organizers linking peace, justice, and the environment in the U.S. and globally. IPS has partnered with The Democracy Center, based in Bolivia, to create a Network for Justice in Global Investment to help facilitate a debate over a range of policy options, including withdrawing from the current system, re-writing the rules to support sustainable development and protect national sovereignty, and replacing the system with alternative institutions. To learn more, see: www.justinvestment.org.

Background: Timeline of the Pacific Rim v. El Salvador Case

April 30, 2009: Canadian mining company Pacific Rim Cayman LLC (Pacific Rim) sent a notice of intent to file suit against the state of El Salvador under the Central America Free Trade Agreement for $77 million, after the Ministry of the Environment of that country denied the company extraction permits for its "El Dorado" gold mine. The permits were denied on environmental and public health grounds. A key concern is that the mining project would pollute the Lempa River, the water source for more than half the country's people.

Pacific Rim was the first company to pursue international arbitration against El Salvador using DR-CAFTA provisions. Since Canada is not part of that free trade agreement, Pacific Rim used its U.S. subsidiary in Reno, Nevada to gain access to DR-CAFTA's investor-state dispute settlement mechanism.

January 4, 2010: the government of El Salvador presented preliminary objections to the suit, using provisions in DR-CAFTA aimed at preventing frivolous investor-state cases. El Salvador argued that Pacific Rim had failed to provide sufficient evidence to support its claims, which center on charges of "discriminatory treatment." Although Pacific Rim had permits for exploration, the government maintained that this did not give the firm automatic rights to the mining concession.

August 2, 2010: the ICSID tribunal rejected El Salvador's preliminary objections, stating the case would proceed. In response, El Salvador launched a new set of objections, maintaining that Pacific Rim, a Canadian corporation, should not be allowed to file suit under CAFTA, since Canada is not a party to the agreement. The Salvadoran government argues that Pacific Rim relocated to Nevada, U.S.A. in anticipation of filing a claim under CAFTA and that the case should be dropped due to an abuse of process.

March 2011: Center for International Environmental Law filed an amicus curiae brief on behalf of member organizations of the Mesa Nacional Frente a la Minería Metálica de El Salvador (the El Salvador National Roundtable on Mining) asserting that the case does not involve a "legal dispute" under the ICSID Convention, or a "measure" under DR-CAFTA, but rather simply reflects the investor's dissatisfaction with the democratic political process concerning mining's deleterious impacts and sustainable development in El Salvador.

June 1, 2012: ICSID tribunal accepts jurisdiction. While claims related to DR-CAFTA were dismissed, the case will now proceed to the merits phase to consider alleged violations of El Salvador's 1999 national investment law. In denying DR-CAFTA benefits to Pacific Rim, the ruling cited a "denial of benefits" provision in that treaty which requires foreign investors to have substantial business activity in the treaty partner country. The tribunal found that Pacific Rim was only a passive actor both in the United States before and after December 2007, the period during which the dispute arose in El Salvador. In fact, the ruling quotes testimony by Pacific Rim CEO Thomas Shrake admitting that the company had no employees, office space, or even a bank account in the United States at the time. (As of June 2, the ruling is not yet available on the ICSID web site, but IPS has viewed a copy.)