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June 04, 2010

CAFTA Case Challenges Mining Laws

Pit-mine Earlier this week, an arbitration panel at the World Bank heard the first round arguments of the first environmental case under the investor-to-state arbitration mechanism of the Central America Free Trade Agreement (CAFTA) to date.  The case stems from Pacific Rim’s bid to establish a gold mine in the basin of El Salvador's largest river, Rio Lempa.  Pacific Rim planned to use hundreds of tons of cyanide and hundreds of millions of liters of water per year to recover the gold from the ore, threatening the water resources that thousands of people rely upon.  

Initially Pacific Rim possessed a permit to conduct exploration activities near Rio Lempa, but regulations required it to submit a feasibility study and gain government approval before it could begin actual exploitation of the mine.  Although Pacific Rim applied for an exploitation permit, it failed to submit the feasibility study.  In the face of growing opposition, Pacific Rim

never completed a feasibility study necessary to obtain an exploitation permit for its mine and the government did not issue the exploitation permit.

In December 2008, Pacific Rim formally launched a CAFTA claim for hundreds of millions of dollars in compensation, claiming that El Salvador’s actions constituted discriminatory treatment and expropriation of its investment.  CAFTA’s investor-to-state dispute settlement provision is very similar to NAFTA’s investor-to-state provision in which foreign corporations can claim damages if a government action, including environmental regulations, constitutes expropriation of an investment or discriminatory treatment. Under NAFTA, several environmental and public interest laws have been challenged in the United States, Canada, and Mexico (see our page on these cases here for more info).  It seems that trade negotiators did not learn the lesson from NAFTA and included this investor-state provision in CAFTA, opening the door to outrageous challenges to essential environmental laws like we now see in the Pacific Rim case.

On Monday and Tuesday the tribunal at the World Bank heard Pacific Rim and El Salvador wrangle over El Salvador’s preliminary objections to the case proceeding. Lawyers for El Salvador argued that El Salvador was properly following its own mining laws and that these laws apply equally to all mining companies so they cannot be discriminatory.  Lawyers for Pacific Rim, on the other hand, mostly argued procedural questions.  The arbitration panel is expected to render its decision by August 2nd, at which point either the case will be dismissed or hearings on jurisdiction and standing will proceed. A video of the hearings can be viewed here.

You can take action to ask President Obama to exclude these investor-to-state arbitration provisions from future trade agreements here.

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Amy Bruno

Thanks for your comments! See our Pacific Rim page for the latest updates about this important issue: http://www.citizen.org/Page.aspx?pid=4212

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