Global Policy Forum

By Manuel Pérez-Rocha

Earlier this year, I had the opportunity to travel to Cabañas, El Salvador, to meet with some of the bravest and most successful environmental activists in the world.

Ordinary villagers in this remote area of the country have joined with religious groups, research centers, and others to take on the powerful international mining companies that are seeking to plunder their country's gold.

So far, the activists have been winning this David versus Goliath fight. Two successive Salvadoran governments have denied permits for gold mining on environmental and human health grounds.

Last week, however, these activists suffered a setback-not from their own government, but from an obscure tribunal in Washington, D.C. Two transnational mining companies have used rules in the "free trade" agreement between the United States and six countries in the region to sue the government of El Salvador.

They are demanding hundreds of millions of dollars in compensation for the denial of mining permits. The first company to file suit, Pacific Rim, has just won the first stage of the proceedings by overcoming the Salvadoran government's effort to get the case thrown out on jurisdictional grounds.

The tribunal's decision to give the green light to this controversial case should send shudders down the spines of advocates for the environment, community rights, and democracy.

The type of investment rules employed by Pacific Rim to mine for gold in international tribunals are contained in thousands of bilateral investment treaties around the world and more than a dozen existing and pending U.S. trade agreements. What's happening to El Salvador could happen almost anywhere, despite the struggles of activists to defend their environmental rights.

Resource Rights in El Salvador

The National Roundtable on Metallic Mining of El Salvador (La Mesa) is a broad group of community organizations, human rights NGOs, church groups, and research centers that have been working courageously-several of their members have been murdered, and many have received death threats-to prevent gold extraction in El Salvador.

Among other environmental impacts, this gold mining would pollute the already-scarce water basins with cyanide. The European Parliament recently banned this activity.

Last year, La Mesa succeeded in persuading the Salvadoran government to halt gold extraction by denying permits to the Canadian-based Pacific Rim and the U.S.-based Commerce Group and Sebastian Gold Mines (Commerce Group). The activists bolstered their case with studies that demonstrate the lack of satisfactory environmental impact assessments, in the case of Pacific Rim, and the already poor environmental record of Commerce Group.

After being denied the permits, the companies took their quest for gold to Washington. Both are suing El Salvador at the World Bank's International Center for Settlement of Investment Disputes (ICSID). They are demanding $100 million each in damages under the investment chapter in the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR), a treaty that went into effect in 2005 with seven signatories, including El Salvador.

Track Record

Commerce Group is notorious for alleged environmental violations related to gold and silver mining projects that it operated in the past in different localities in El Salvador. Several Salvadoran organizations have repeatedly denounced the company and demanded that the country's attorney general investigate charges that Commerce Group has polluted the San Sebastían River, harming the people of the locality of Santa Rosa de Lima.

One environmental study indicated the presence of metals like aluminum, zinc, iron, manganese, and nickel demonstrating the "presence of acidic drainage provoked by Commerce Group, which affects mainly children and women." According to the study, "Sixty percent of the population experiences symptoms of weakness, fatigue, lack of appetite, nausea, yellowed skin, rashes, and mental confusion."

These environmental charges will not likely carry much weight at the ICSID tribunal, however. The proceedings are based on compliance with the CAFTA-DR investment rules-national treatment, most favored nation, minimum standard of treatment, and compensation for "indirect expropriation"-and not compliance with environmental standards.

Impact on the U.S. Trade Debate

According to U.S.-based advocacy group Public Citizen, the recent Pacific Rim ruling is so controversial that it could help fuel demands for reforms of international investment rules, not only in CAFTA-DR but also other U.S. trade agreements.

As a senator on the presidential campaign trail, Barack Obama was critical of the existing trade and investment model. Obama opposed the CAFTA-DR because it "does little to address enforcement of basic environmental standards in the Central American countries and the Dominican Republic."

In 2008, during his campaign, Obama committed to making changes in investment rules, responding to a questionnaire on trade policy saying that "with regard to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest."

However, the Obama White House is now pushing for congressional approval of several trade agreements negotiated by the Bush administration that contain investment rules nearly identical to those in CAFTA-DR.

The gold mining cases against El Salvador should help reveal the dangers of investment rules that elevate the narrow interests of private foreign investors above those of the general public and the environment. Civil society organizations and policymakers around the world are exploring alternative approaches that would promote a more equitable balance between corporate interests and the broader public interest.

As La Mesa's Vidalina Morales has put it: "Pacific Rim has assailed our country, breaching environmental requirements, undermining laws, provoking environmental damage, economic losses, social conflict and corruption, and it should be judged for that. But the roles have been inverted, and it is the company that sues the country, and the perpetrator who sues the victim."

As a result, El Salvador, one of the poorest countries in the hemisphere, must spend millions of dollars defending against two expensive lawsuits in Washington, money that otherwise could have gone toward poverty alleviation. This terrible irony makes a change in those investment rules imperative.