The costs of ICSID arbitration and the consequences for the enjoyment of social rights in El Salvador

February, 2012

By the Foundation for Studies on the Application of Law (FESPAD, a Member of the National Roundtable on Metallic Mining in El Salvador)[1] [2]

The legal proceedings initiated by the mining company Pacific Rim[3] against the Salvadoran state before the International Center for the Settlement of Investment Disputes (ICSID), is today waiting on a resolution. This is because the three arbiters who will decide the case have been given the task of deliberating at length over the last round of jurisdictional objections put forth by El Salvador. The fact that Pacific Rim has created a subsidiary in the state of Nevada, three years after the beginning of its conflict with El Salvador, to then later claim that it has the right to recourse under the DR-CAFTA, might be considered a form of fraud. The tribunal should take this fact carefully into consideration.

We expect this decision to be given in the next few days.

At this stage in the process, the best scenario for El Salvador would be a decision on the jurisdictional objections that favors it, and would mean that the case is dismissed. The worst scenario for El Salvador would be that the tribunal allows the proceedings to continue to the next stage, in which both parties would present their charges and defense, and in which responsibilities would then be established.

Pacific Rim demands indemnity for 77 million USD in return for its investment in El Salvador, and the number could reach hundreds of millions of dollars. This is because the company claims that its stock lost value after the permit for a mining concession was denied.

It must be remembered that El Salvador has been placed twice in the defense seat at supranational tribunals. The first occasion was the case presented in mid-2009 by the mining company Commerce Group, with allegations that the country had no legal basis for denying it permits for mineral exploration. Commerce Group demanded compensation of 100 million dollars, along with the re-instatement of its revoked environmental permits, without which the mining project could never exist. The decision came in March of 2011 that this case would not be accepted by ICSID. Regardless, the phase of preliminary objections cost El Salvador 800,000 USD in legal fees.

In the Pacific Rim case, which was also presented in mid-2009 and was accepted somewhat later by ICSID, El Salvador has continued the process of placing objections, which has prolonged the proceedings at a considerable cost. The cost of this case for El Salvador has been estimated at 4.3 million USD. This means that in defending itself against these two cases, El Salvador has already spent a total of over 5 million USD. For El Salvador, a country with very few financial resources, to be paying millions in arbitration, it has the effect of deepening the precariousness for the lives of people whom the state protects the least. It is extremely difficult for our country to assume these costs for arbitration, and the costs have serious economic and social implications for the people of El Salvador.

As one example, those five million USD would have provided one year worth of adult literacy classes for 140,000 people[4].

Those five million USD could have doubled the amounts of scholarships available to middle school students[5].

Five million USD are equal to what the government invests every year in infrastructure and public schools that benefit 384,615 students[6].

The five million USD paid in arbitration are approximately a third of what the government invests in the provision of food for Salvadoran students[7].

The five million USD paid in arbitration equal the full sum of what the government would invest in order to give each public school student a glass of milk every day, to support their nutritional development.

Five million USD in arbitration would cover a fifth of what the government needs to develop its 2012 vaccination program.

Five million USD could serve to feed 60,570 families in temporary housing for a full two weeks during a natural disaster[8].

If this and more can be accomplished with five million USD, how much more could be accomplished with the 77 million USD that Pacific Rim is demanding, or the hundreds of millions it could win from El Salvador?

It is for this very reason that in December of 2011, civil society organizations representing millions of people in El Salvador, the United States, Canada and the world, submitted a petition to ICSID and the World Bank (where the trade tribunal is housed) that asks for respect for domestic judicial processes, the sovereignty of El Salvador, and to have the Pacific Rim case dismissed. We are waiting.