The Rights Clash:Mining in El Salvador exposes the contradiction between human rights and corporate rights under the international investment regime.


July 15, 2013

By Danielle Marie Mackey

Mining in El Salvador exposes the contradiction between human rights and corporate rights under the international investment regime.

“This is practically an urban country. We’re talking about putting a mine in the middle of a city,” exclaimed Fr. Jose Maria Tojeira from the stage. “Imagine mining in the middle of New York or Paris. That’s what they want to do here in El Salvador. This is… crazy.”

Fr. Tojeira, the ex-rector of one of the leading universities in El Salvador, was giving a presentation during the international “Gold Mining and the Defense of Water in El Salvador” conference that took place in May. The country is embroiled in a battle on the subject: civil society is demanding that the Congress pass a law banning metallic mining, while two North American mining companies are suing the Salvadoran government to defend their right to mine.

Studies show that mining would exhaust the country’s already scarce water reserves, dump thousands of liters of toxic chemicals into the ground, and leave swaths of territory in the most densely populated country in Central America totally uninhabitable. These effects would almost certainly be irreversible and would be disastrous for the 3.75 million people who live in the area.

Fr. Tojeira is not the only one who opposes mining in the country. He is joined by two successive presidents from rival political parties, multiple government ministries, and upwards of 60 percent of the Salvadoran population, according to a 2007 poll carried out by the University of Central America.

In response, in 2009, the government placed a temporary moratorium on mining and denied permits to two North American companies. But it soon found out that the cost of protecting its population could be more than $300 million; the mining companies countered by suing, citing investor protection mechanisms written into Salvadoran law and a free trade agreement signed with the U.S. government. In other words, the Salvadoran government is being punished for practicing democracy.

Human Rights Violations and Mining

In December 2012, three young boys play swordfight with ragged sticks in the rural Salvadoran town of San Sebastian. They advance toward each other, hopping from rock to rock, then pivot away in the nick of time. One boy edges close to the stream that borders the rocks. Swords suddenly go still; the boy steps away, gingerly, from the bright orange water. Then a giggle, and play resumes.

About 300 yards upstream of is the San Sebastian mine. In 1977, a Milwaukee, Wisconsin-based mining company called Commerce Group closed its operations there. In the years since, bedrock exposed during mining caused acid drainage, which has contaminated the once-clean, drinkable water for the last forty years.

This stream was once the main source of water for crops, cattle, and local drinking water. Now, even those who don’t drink from the stream are affected by the contamination: residents of San Sebastian display an unusually high number of cases of kidney failure, cancer, skin rashes, and nervous system disorders, like the rare autoimmune disease Guillan-Barré Syndrome.

As a signatory to multiple human rights agreements under the United Nations and Inter-American human rights systems, the Salvadoran government has the obligation to protect certain rights for its people. Among those are the rights to life and to a healthy environment. This means not only refraining from directly abusing these rights, but also ensuring that third parties don’t abuse them.

Special State Attorney for the Environment, Yanira Cortez, works in the office of El Salvador’s Human Rights Ombudsman. “The case of San Sebastian shows how transnational corporations contaminate the environment, and then leave,” Cortez said in a presentation at the mining conference in May.

The Canadian mining company Pacific Rim carried out an “environmental impact study” prior to soliciting a permit to mine in El Salvador. In the study, Pacific Rim estimated that it would need to use 900,000 liters of water per day, drawing it from the country’s largest river, the Lempa. That level of water consumption is “a daily quantity that would satisfy your average Salvadoran family for twenty years,” asserted congresswoman Lourdes Palacios at the conference.

…contamination would be deadly for millions of Salvadorans; indeed, it would be a widespread violation of the right to life.

Contamination and excessive water use by mining companies constitute a human rights abuse in El Salvador, which already does not have enough potable water for its nearly seven million citizens. The United Nations Economic Commission on Latin America and the Caribbean classified the country as one that suffers from “hydric stress,” and in 2011 the country’s Ministry of the Environment announced that 90 percent of El Salvador’s water is too contaminated to be potable.

Amidst this scarcity, the water source that 62 percent of Salvadorans rely on for drinking, washing, crops, and cattle is the Lempa River. This is the river from which Pacific Rim would draw nearly one million liters per day, prompting many to question how the water could be sold to foreign industry when it is needed for local survival.

And there’s another issue: cyanide and arsenic are necessary to extract gold from bedrock. Pacific Rim, by its own estimates, would use as much as 40 tons per day of these toxic chemicals, which could easily leech into the soil and water of the Lempa. This contamination would be deadly for millions of Salvadorans; indeed, it would be a widespread violation of the right to life.

The Rights Clash in El Salvador

Commerce Group, which closed its San Sebastian mine in 1977 and left the community contaminated, applied for another permit in 2004 to begin mining in other parts of the country, assuring the government it would comply with environmental legislation. In 2005, Pacific Rim also applied for a permit, in the face of widespread opposition.

The Human Rights Ombudsman’s office has received a “constant series of complaints about mining since 2006,” cited Cortez at the conference. The Farabundo Martí National Liberation Front (FMLN) lists more than 100 petitions from citizen groups asking for metallic mining to be prohibited, added Congresswoman Palacios, whose party sees this as “a majority and constant rejection of mining by Salvadoran society.”

In 2006, a coalition of civil society groups, the National Working Group against Metallic Mining, joined forces with the FMLN to propose a law banning metallic mining in the country. The draft law also establishes strict regulations over other types of mining. The Legislative Assembly has debated the law on several occasions without bringing it to a final vote.

Meanwhile, the government placed a temporary moratorium on mining, citing environmental concerns, and denied permits to both Commerce Group and Pacific Rim.

In 2009, both companies filed suit a court called the International Centre for Settlement of Investment Disputes (ICSID), run by the World Bank in Washington, D.C. They claimed that they met the government’s mining requirements, and had already spent thousands on exploration for gold, so it was illegal to now deny them extraction rights. The Salvadoran government countered that the companies did not, in fact, meet its mining laws.

The companies sued for a combined total of $415 million in “lost potential profit.” This amounts to two thirds of El Salvador’s annual education budget.

The purpose of the ICSID is to administer justice when a corporation alleges unfair treatment by a host government. Thus, it only considers whether the laws and treaties relevant to the case were followed. The ICSID does not take human rights or democratic principles into account.

The ICSID tribunal is a key player in the current international investment regime, which has severed human rights concerns from business practices. In El Salvador, we see the result. The government was faced with an industry that would devastate its population for generations. When it pushed back against corporate pressure, it ended up in a court in the United States, which could find it guilty of infringing on corporate rights.

How did this happen?

In El Salvador, as in many potentially volatile global southern countries, investor protections are billed to help create a stable business environment, which in turn foments investment and development. “Investor protections” are the risk-buffering mechanisms that corporations enjoy when doing business abroad. Essentially, they are corporate rights that host-country governments must agree to respect. Investor protections are written into the bilateral (BIT) and free trade agreements (FTA) that countries sign with each other. However, experts argue that in practice, these protections allow corporations to pursue profit at any cost, trampling human rights in the process.

“Corporations have access to mechanisms that protect their interests and rights, which are nullifying human rights and superseding government policies”

A recent report published by the Institute for Policy Studies (IPS) says that the BITs and FTAs that include such rules are “reduc[ing] countries’ power to uphold their sovereign rights, while granting transnational corporations increased access to their resources with less regulatory restrictions.”

For example, if a host government passes a new public interest law that significantly reduces the value of a foreign company’s investment, that company can sue the government for “indirect expropriation.” If a government implements more stringent environmental protections, for instance—and this significantly increases the cost of doing business for a foreign company that was operating in the country before the new measure was passed—it can sue the government for lost profits. Another common measure is that the host government must agree to a ban on capital controls. This means that it cannot take steps to protect its economy by limiting the amount of foreign currency flowing in and out, through setting tariffs or taxes.

A third measure assures companies like Commerce Group and Pacific Rim access to international tribunals, the most popular of which is the ICSID. These are the venues where foreign corporations take their multi-million dollar complaints against governments that have become trapped in the rights clash: whether by passing an environmental protection law or taking steps to protect local economies, they make business for these corporations less profitable. Offending governments are hauled before this special justice system, where the short-term, profit-driven interests of corporations are pitted against the long-term, democratic interests of nations. And many times, the companies win.

So why would the Salvadoran government accept investor protections? The answer is simple: it wanted to attract foreign investment, so it followed the rules of the international investment regime. In fact, it is part of a “concerning trend of countries freely signing human rights treaties and corporate treaties that contradict each other,” explains Pablo de la Vega, the Regional Coordinator of the Inter-American Platform for Human Rights, Democracy and Development, told me in May.

In 2004, the Salvadoran government signed a major free trade agreement with the U.S., the Central American Free Trade Agreement (CAFTA), which included the investor protections that Commerce Group and Pacific Rim then used to sue the Salvadoran government. Complicating things further, the Salvadoran government had already passed domestic legislation during the worldwide structural adjustment push by international financing institutions in the 1990s, allowing El Salvador to be brought before the ICSID when an investor alleges discriminatory treatment.

“Corporations have access to mechanisms that protect their interests and rights, which are nullifying human rights and superseding government policies,” said Meera Karunananthan, the National Water Campaigner for the Council of Canadians, in May. “This is what has weakened governments and spaces for policy making.”

Investors’ protections written into commercial treaties have serious consequences for governments in the global south. In the case of El Salvador, the government must essentially buy back its ability to protect human rights and to observe democracy.

This is especially true because of the financial power that commercial treaties include, which human rights treaties don’t. “We have to understand that governments sign human rights agreements due to social pressure, and they are non-binding, soft-law treaties. They sign commercial treaties because of pressure by investors, and these are binding, hard-law treaties,” explained Manuel Perez-Rocha, an associate fellow at IPS. “So who has more real power? Transnationals assure the upper hand by imposing financial punishments, whereas human rights treaties don’t include financial punishment.” El Salvador has already paid nearly $5 million in legal fees from the first round of defending itself against Commerce Group and Pacific Rim.

A Middle Way

Investors’ protections written into commercial treaties have serious consequences for governments in the global south. In the case of El Salvador, the government must essentially buy back its ability to protect human rights and to observe democracy, at the rate of between $5 million and $315 million.

This rights clash, weighted toward foreign corporations, is prompting governments to seek alternative roads to development. For instance, in 2012, Ecuador was ordered by the ICSID to pay the largest award in history—$1.7 billion plus interest—to Occidental Petroleum. The country has since left the ICSID, and is spearheading the formation of a multi-lateral observatory of Latin American governments, which seeks to protect against “abuse by transnational corporations” in the region.

Karunananthan believes that El Salvador would be wise to follow Ecuador’s lead. “Whether El Salvador wins or loses [the Pacific Rim case], it’s not a victory for the country. There will always be another Pacific Rim,” she said. “So, what the country needs is a permanent ban on mining, along with stronger local legislation and changes in the investment law.”

For now, it is a waiting game. Whenever it comes, the thud of a courtroom gavel in Washington will resound in El Salvador.

Danielle Marie Mackey is a freelance journalist and interpreter based in San Salvador. She writes about conflict, social movements, and structural injustice. She is originally from Iowa. More of her work is available here.