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Trade Deals Are Giving Corporations the Power to Intimidate Tiny Countries

Saul Loeb/Getty Images

Alejandro Guevara hasn’t slept. There was a death in La Maraña, and Guevara, the vice president of the community environmental association, spent the night at the wake. Still, he doesn’t skip a beat as he describes recent violence in his small Salvadoran village, running dates and names, his own included. Someone fired shots at Guevara’s home in October 2013. An anonymous person then called to his cell to ask whether anyone in the house had died.

Murders, threats, and attacks have followed the environmental activists who oppose a gold mining project in the Cabañas department in northern El Salvador. The list is a work in progress. On April 4, police harassed Santos Neftalí Ruíz, a priest and the president of the Cabañas Environmental Committee.

“The threats continue,” Guevara says. Resistance to mining also continues, but years of conflict, fear, and grief have taken a heavy toll in this small community. “Psychologically, we’re sick,” admits Guevara, his voice wavering.

The situation in Cabañas should have calmed down seven years ago when the Salvadoran government put the brakes on the mining project, but an international lawsuit has drawn out the conflict and violence on the ground. The legal case has also had a chilling effect on public interest and environmental policy-making in the small Central American nation. It all raises questions about the potential impacts of investment-protection mechanisms included in the Trans-Pacific Partnership and other free trade agreements.

The lawsuit against El Salvador is a poignant example of how the deck is stacked to favor large companies, allowing them to undermine sovereignty and democratic governance in smaller countries. The legal costs alone ensure that even if El Salvador wins, it loses.

In 2008, the Salvadoran government denied environmental and exploitation permits to Pacific Rim, a Canadian mining company, for its El Dorado gold mine, citing environmental and public health worries. Pacific Rim, which has since been acquired by Canadian-Australian company OceanaGold, responded by filing a claim against El Salvador with the International Centre for the Settlement of Investment Disputes (ICSID), a supranational arbitration tribunal housed at the World Bank Group in Washington, D.C.

When Pacific Rim initiated proceedings in 2009, the company based its case on Salvadoran investment legislation and on DR-CAFTA, the free trade agreement between the United States, the Dominican Republic, and five Central American countries, including El Salvador. The move required some ingenuity, as Canada is not party to DR-CAFTA. At the time, it was also not party to the ICSID Convention, which Canada didn't ratify until 2013.

Pacific Rim, which is based in British Columbia, didn’t technically file the claim against El Salvador. One of its wholly owned subsidiaries did. As its name suggests, Pac Rim Cayman LLC was essentially a holding company based in the Cayman Islands. However, in 2007, it was reincorporated in the United States, which is party to both DR-CAFTA and the ICSID Convention.

The company claims that once it found gold and silver deposits, El Salvador subjected it to arbitrary and unfair treatment. Pacific Rim says the situation amounted to El Salvador unlawfully expropriating its investments, an argument in line with the investment protection clauses in DR-CAFTA and other free trade deals. El Salvador disputes the claims. According to the government, Pacific Rim failed to present anything beyond an initial pre-feasibility study, had not acquired all the necessary surface land rights, and otherwise did not meet the legal requirements for the permits in question.

The three ICSID arbitrators ruled against the application of DR-CAFTA in 2012, but allowed the case to proceed based on provisions in El Salvador’s 1999 investment law that have since been amended. Pacific Rim initially demanded $77 million in compensation. That number has since increased to $301 million for the hypothetical profits it would have made from the precious metals that remain buried.

Controversy over Investor-State Dispute Settlement (ISDS) clauses and tribunals like the ones used by Pacific Rim made waves this past March after WikiLeaks leaked a confidential draft of the Trans-Pacific Partnership’s investment chapter. The TPP trade pact is currently being negotiated by the United States and 11 other countries in the Americas and Asia-Pacific region. ISDS has also become a key point of contention around the proposed Transatlantic Trade and Investment Partnership between the United States and the European Union.

While the number of actual cases has increased dramatically during the past few years, ISDS clauses have been included, often at the behest of the United States, in hundreds of bilateral and multilateral trade and investment agreements worldwide. The impact of ISDS on the United States is often exaggerated, even on the American left. Agreeing to include ISDS in the TPP “would undermine U.S. sovereignty” and “tilt the playing field in the United States further in favor of big multinational corporations,” Senator Elizabeth Warren wrote in the Washington Post earlier this year.

The uneven playing field at stake is not in the United States. It's global. Of the 519 cases in the online ICSID database, 114 cases involve U.S. investors suing countries all over the world. Foreign companies suing the United States accounts for a whopping total of five cases. With the largest national budget on the planet, U.S. regulatory structures and public interest law won’t crumble under the weight of a process that disproportionately benefits the country’s own companies. The truly devastating impacts of ISDS are playing out in the El Salvadors of the world.

As the turkey vulture flies, it’s nearly 1,900 miles from ICSID in Washington down to Cabañas. The road winds from a reservoir along the country’s longest river up into the bone-dry hills. The end of the dry season is the hottest time of year here, and the leadership of the La Maraña community environmental association has gathered at the local school. It’s much cooler in the shade of the trees down by the water, but they didn’t want to meet out in the open.

“The communities here have been divided,” Guevara says. The situation in La Maraña has been particularly tense. The community is located within one of the disputed mining concessions. When Pacific Rim began exploration in the area in 2002, the community and even families fractured over the pros and cons of mining.“The mayor himself has said that we’re against community development,” says Guevara.

After the government blocked the El Dorado project, Pacific Rim filed its claim with ICSID. Then a series of violent attacks on local environmental activists began.

On June 18, 2009, Marcelo Rivera, director of the San Isidro cultural center and a leader in the local anti-mining movement, was abducted. His body was found the following month, showing signs of torture. On June 24, an unknown assailant fired shots at Domingo Miranda, the current president of the La Maraña environmental association. On August 7, Cabañas Environmental Committee vice president Ramiro Rivera was the target of a shooting. He survived, only to be killed along with Felicita Echeverría on December 20. Six days later, Dora Recinos Sorto was shot and killed in the community of Trinidad. She was eight months pregnant at the time.

Killings of environmental activists are on the rise worldwide, according to a new report by Global Witness. Released April 20, How Many More? documents 116 cases from 2014, nearly three quarters of which took place in Central and South America. Most of the killings seemed driven by mining, hydropower, and agro-business. “The true orchestrators of these crimes mostly escape investigation, but available information suggests that large landowners, business interests, political actors and agents of organized crime are often behind the violence,” the Global Witness report states.

Pacific Rim denied any connection to the 2009 murders in Cabañas. The community and government representatives, though, have criticized the company's investigation. In a December 29, 2014 statement commemorating the fifth anniversary of the killings, Human Rights Ombudsman David Morales said “the investigation into the homicides did not take all possible actions to clarify the crimes committed and to find out both the material and intellectual authors, exhausting all lines of inquiry.”

The movement against metallic mining in El Salvador is as strong as ever as the ICSID case draws to a close. People want to protect the country’s water.

“We’re the smallest and most densely populated country in Central America," Vidalina Morales, an outspoken anti-mining activist in Cabañas, told me. "The majority of the mining projects are located in a strip in the northern part of our country, a region that holds the watershed of the country’s most important river."

San Salvador, EL SALVADOR: Residents of the Salvadorean town of Ilobasco, protest in front of the Canadian consulate in San Salvador, against the explotation of the Canadian mining corporation Pacific Rim in Sensuntepeque, Cabanas, on May 21st, 2007. Settlers of many towns around El Salvador are protesting against the mining explotation of foreign companies, because of the damage they could cause to the environment in their communities. AFP PHOTO/Jose CABEZAS (Photo credit should read Jose CABEZAS/AFP/Getty Images)
AFP/Getty Images

The Lempa River provides water for about half of the 2.5 million people living in the San Salvador area, as well as for communities and agriculture around the country. Hydroelectric dams along the Lempa provide roughly 40 percent of the country’s electricity, and Guatemala and Honduras share the LempaRiver basin.

Metallic mining just isn't viable in El Salvador: The ministries of the environment and economy concluded as much in 2012, after conducting a joint strategic environmental assessment of the mining sector. They presented a bill proposing to suspend all permit and license requests until certain conditions were met. The grassroots National Roundtable against Metallic Mining coalition proposed a permanent ban. Congress has passed neither bill.

There is instead a de facto moratorium on mining. In 2008, around the peak of the conflict over El Dorado in Cabañas, right-wing president Antonio Saca announced that he would not grant any permit for mining. The two subsequent left-wing administrations have renewed the commitment. It’s essentially an administrative policy of intentional inaction. The looming threat of lawsuits has had a chilling effect on environmental law and policy, deterring a legislated ban on mining or even an executive decree.

“There are so many permits on standby right now, so there is fear that these companies will follow the lead of Pacific Rim,” Yanira Cortez, the deputy attorney for the Human Rights Ombudsman Office, told The Guardian last year.

It’s no wonder that a $301 million lawsuit and the possibility of future cases would affect policy decisions in a country as small as El Salvador. The budget for its Ministry of Environment and Natural Resources is all of $20.7 million. The compensation Pacific Rim seeks is equivalent to 6.2 percent of the country’s 2015 budget, more than is allotted to the entire judiciary. Even the litigation costs have been a significant burden for El Salvador, surpassing the annual budget of the national human rights institution for which Cortez works.

Cases like the one against El Salvador are a warning of the devastating impacts ISDS lawsuits can have, particularly on smaller and poorer countries. Some nations have already jumped ship, with Latin America taking the lead. Bolivia, Ecuador and Venezuela have all withdrawn from ICSID in the past decade. “Brazil continues to receive lots of foreign investment, despite its long-standing refusal to sign any treaty with an ISDS mechanism,” The Economist noted last year, adding that South Africa, India and Indonesia have varying plans to move away from treaties that include ISDS mechanisms.

As negotiations for the TPP, TTIP and other trade pacts move forward, understanding the consequences of company lawsuits against countries like El Salvador is crucial. Final hearings in the Pacific Rim case were held last fall, and a ruling may come at any time.