Freedom of Information
August 11, 2010

A World Bank arbitration panel has ruled in favour of Canadian mining company Pacific Rim in determining that a controversial lawsuit, which the corporation filed against the government of El Salvador after the latter indefinitely suspended the exploitation of a gold mine close to the nation’s capital, may proceed. Preliminary Objections to Pacific Rim’s case had been filed by the Salvadorian government in January, alleging that the lawsuit was erroneous and without legal foundation.

El Salvador’s president, Mauricio Funes, had halted exploration at the El Dorado mine site, located around 40 miles from San Salvador, citing the potential for environmental and social damage. In June, Funes had affirmed that, “El Salvador and my government are not going to support, nor authorise, any mining exploration or exploitation which puts the country’s health at risk and which further deteriorates our environment”[1], however the panel’s ruling puts this position in serious jeopardy.

The case, brought by Pacific Rim subsidy Pac Rim Cayman, has been shrouded in controversy since it was filed in April of 2009, with the government of El Salvador maintaining from the outset that there is no legal basis for arbitration on behalf of the International Centre for Settlement of Investment Disputes (ICSID), the World Bank’s dispute resolution panel. Upon filing the case, Pacific Rim announced that it would be seeking, “award of damages in the hundreds of millions of dollars from the government for its multiple breaches of international and Salvadoran law”[2], and the figure currently being demanded by the Canadian company is $77 million. An estimated 30% of El Salvador’s 6 million people live below the poverty line, and the country’s illiteracy rate currently stands at around 20%.[3]

Pacific Rim has pursued its claim under the terms of the 2005 Central American Free Trade Agreement (CAFTA), to which the United States, the Dominican Republic and five Central American nations, including El Salvador, are signatories. The company’s Pac Rim Cayman subsidiary had been registered in the Cayman Islands, but relocated to the U.S. state of Nevada in 2007 – some three years after a rift had begun to emerge between Pacific Rim and the government of El Salvador.  CAFTA has no jurisdiction in either Canada, where Pacific Rim is registered, or in the Cayman Islands, but Pac Rim Cayman’s registration in Nevada has allowed it to use the terms of the free trade agreement to bring legal proceedings against El Salvador.

The Salvadorian government presented ICSID with a six-page document outlining what it describes as flagrant violations of World Bank policy last week, after the panel had determined that the case would be allowed to proceed in spite of vociferous objections. The government also charges that Pacific Rim is acting in violation of the 1996 El Salvador Mines Law, which stipulates certain prerequisites for the granting of mining concessions in the country.[4]

Pacific Rim’s President and CEO, Tom Shrake, said that the company was “very pleased” with ICSID’s decision to allow the case to proceed. “This is a positive and crucial step in the CAFTA process for Pac Rim. We are, however, reticent to celebrate as we believe a more productive outcome is possible for both the Salvadoran people and foreign investors. With this phase of the arbitration now completed, we hope to resume a mutually beneficial dialogue with the Government of El Salvador to resolve the impasse on the El Dorado project”, he added.[5]

The Salvadorian National Committee against Mining (Mesa Nacional frente a la Minería), however, decried the ICSID ruling, saying that it sets a “terrible precedent” in terms of national sovereignty and the right of a country “to reject projects that are environmentally or socially unfeasible”.[6] The committee has called on Funes’ government to join forces with groups opposed to the World Bank’s ruling, with activist Manuel Fuentes saying that such by allying with such organisations the government can “strengthen its defensive strategy”.

Furthermore, there have been calls from activists in El Salvador for the government to pass legislation prohibiting outright the mining of metals in the country, to withdraw from the Central American Free Trade Agreement with immediate effect, and to rule out the possibility of signing bilateral trade accords with Canada.

Neoliberal ‘free trade’ agreements such as CAFTA and its counterpart NAFTA – the North American Free Trade Agreement, which encompasses Canada, Mexico and the United States – have come under intensifying scrutiny in recent years, as many have pointed out that they actively erode national sovereignty and pit member states’ economies against one another in what has been dubbed the “race to the bottom” by some economists.

Republican Congressman Ron Paul remarked of CAFTA in 2005 that, “It is absurd to believe that CAFTA and other trade agreements do not diminish American sovereignty.  When we grant quasi-governmental international bodies the power to make decisions about American trade rules, we lose sovereignty plain and simple… Like the UN, NAFTA, and the WTO, it represents another stone in the foundation of a global government system.  Most Americans already understand they are governed by largely unaccountable forces in Washington, yet now they face having their domestic laws influenced by bureaucrats in Brussels, Zurich, or Mexico City.”[7]

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Former World Bank Chief Economist Joseph Stiglitz has also voiced opposition to NAFTA and CAFTA, observing that these agreements have had a detrimental effect on domestic agriculture in signatory states, whose markets have been flooded with cheap produce imported from the United States. In many cases, heavy subsidies offered to U.S. farmers by the federal government mean that U.S.-grown crops are able to undercut domestic produce with disastrous results for those who depend on farming to make a living. The result has been increasing rural poverty in countries such as Mexico, simultaneously fuelling migration from the countryside to the city and immigration from Latin America into the United States.

Speaking about the effects of the NAFTA agreement on Mexico, Stiglitz observes that, “NAFTA, ten years later, did not, I think, produce the benefits that Mexico had hoped for. A fairer agreement could have, but that’s not what they got. One of the key aspects of this was agriculture. The price of corn fell by half. The poorest people in Mexico are corn farmers. So you increased the poverty among the poorest groups in the country. It helps their urban workers, who buy food, but it hurts the some of the poorest. So you have seen this change in the pattern of inequality within Mexico.”[8]

In 1993, then-Vice President-elect Al Gore took part in a televised debate with independent presidential candidate Ross Perot, a passionate opponent of NAFTA, on a special edition of Larry King Live on CNN. It was during this debate that Gore uttered the now infamous line, “this is a good deal for our country”[9].

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A 2003 report into the effect of NAFTA on the U.S. economy, however, contradicts Mr. Gore in the strongest possible terms. Robert E. Scott’s report, The high price of ‘free’ trade, notes that in the first ten years following the 1993 inception of NAFTA, over 870,000 jobs were lost from the United States, mostly “high-wage positions in manufacturing industries”[10]. In addition, NAFTA “contributed to rising income inequality, suppressed real wages for production workers, weakened workers’ collective bargaining powers and ability to organize unions, and reduced fringe benefits”.

Scott’s damning report observes that, “no protections were contained in the core of the agreement to maintain labor or environmental standards”, and that NAFTA, “tilted the economic playing field in favor of investors, and against workers and the environment, resulting in a hemispheric “race to the bottom” in wages and environmental quality”.

The report goes on to state that advocates of NAFTA, such as Al Gore and former President George W. Bush, “misrepresent the real effects of trade on the U.S. economy: trade both creates and destroys jobs. Increases in U.S. exports tend to create jobs in this country, but increases in imports tend to reduce jobs because the imports displace goods that otherwise would have been made in the United States by domestic workers.”

The result of nearly two decades of unchecked neoliberal economic policy has been a sharp decline in real wages and living standards in the United States, spurred on by the near-total obliteration of the country’s manufacturing sector as companies seek to maximise profit margins by moving their factories south of the border where land and labour are considerably cheaper. With support for such policies unsurprisingly strong among Washington D.C.’s political elite, this trend shows no sign of relenting in the foreseeable future.

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[1] Pacific Rim expresa su satisfacción por victoria en tribunal internacional, http://noticias.terra.es/2010/economia/0804/actualidad/pacific-rim-expresa-su-satisfaccion-por-victoria-en-tribunal-internacional.aspx

[2] Arbitration panel favors Canada miner in dispute with El Salvador, http://www.laprensasa.com/2.0/3/309/796002/America-in-English/Arbitration-panel-favors-Canada-miner-in-dispute-with-El-Salvador.html

[3] The CIA World Factbook – El Salvador, https://www.cia.gov/library/publications/the-world-factbook/geos/es.html

[4] El Salvador busca frenar demanda de Pacific Rim, http://www.elsalvador.com/mwedh/nota/nota_completa.asp?idCat=6374&idArt=5040098

[5] Pac Rim Cayman LLC – ICSID Tribunal Rejects Government of El Salvador’s Preliminary Objection, http://www.allbusiness.com/legal/trial-procedure-decisions-rulings/14892156-1.html

[6] Ambientalistas consideran un “precedente nefasto” la decisión contra El Salvador, http://es.noticias.yahoo.com/9/20100811/tsc-ambientalistas-consideran-un-precede-23e7ce8.html

[7] CAFTA: More Bureaucracy, Less Free Trade, http://www.house.gov/paul/tst/tst2005/tst060605.htm

[8] Fair Trade for All: How Trade Can Promote Development, http://www.cceia.org/resources/transcripts/5339.html

[9] NAFTA: Ross Perot and Al Gore Debate 1993, http://www.youtube.com/watch?v=GhwhMXOxHTg

[10] The high price of ‘free’ trade – NAFTA’s failure has cost the United States jobs across the nation, http://www.epi.org/publications/entry/briefingpapers_bp147/

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