International investment agreements (IIAs) give conflicts between mining companies and communities a transnational dimension, allowing investors to sue a state before an IIA tribunal. While investor-state disputes related to extractive industries arise from a wide range of state actions, an important subset are triggered by domestic conflicts between anti-mining groups and foreign companies. How does arbitration affect anti-mining movements? I argue that IIAs limit the government’s responsiveness to domestic pressure, reducing the ability of domestic nonstate actors to influence policies governing the extractive industry. However, it cannot be assumed that states would support these groups even without investor pressure; IIAs only have this effect when anti-mining groups are able to change the state’s preference toward the investment.
Economic globalization endows states with legal obligations to noncitizens by means of trade-and-investment agreements and increases the presence, via foreign direct investment (FDI), of transnational actors within the state. This may give domestic social and political conflicts a transnational dimension, because foreign actors can invoke international legal protection of their interests. Given the high level of foreign firm involvement in the mining industry, this description characterizes many conflicts between mining companies and domestic actors opposed to mining. This article examines the transnational nature of domestic resource conflicts, focusing on the impact of international investment agreements (IIAs) on domestic anti-mining movements. The arguments presented here are illustrated by the example of the investment arbitration case between Pacific Rim, a Canadian mining company, and El Salvador.
Over the last decade, El Salvador has been the setting for a scene now familiar across Latin America: anti-mining activists, primarily from impoverished rural areas, have put up fierce resistance to what they perceive as the undesirable incursion of mining companies into their communities. As in many company-community conflicts, the primary concern of the mining-affected communities in El Salvador is water use—mining operations consume significant amounts of water, and El Salvador has been identified as an extremely water-insecure country, with very little uncontaminated water available for personal or agricultural use (ECLAC 2010; López et al. 2008). However, unlike in other countries beset with mining conflicts, in which the government has been unresponsive to community demands, in 2009 President Tony Saca announced that no exploitation licenses would be granted during his tenure, suspending mining activity in the country. This suspension has been upheld by two subsequent presidents, making this a fairly unusual, and at first glance unqualified, success for the anti-mining movement in El Salvador.
However, immediately following Saca’s announcement, two companies served the government with notices of intent to arbitrate. Both El Salvador’s domestic investment law and the Central American Free Trade Agreement (CAFTA) contain provisions allowing foreign investors to sue the government for breaches of investment protection agreements and contracts. These legal proceedings take place not in Salvadoran courts but in front of an ad-hoc international tribunal—in this case, at the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID). While one of these suits has been dropped, the arbitration between El Salvador and Canadian company Pacific Rim Cayman is ongoing.1 The company is suing El Salvador for US$ 301 million, although it claims it would also be satisfied with an overturn of the suspension and the granting of their exploitation licenses (OceanaGold 2013). Therefore, the government of El Salvador is caught between two competing interests—those of the company and those of the anti-mining movement. The anti-mining groups have public opinion on their side, and they have successfully leveraged electoral pressure in pursuit of their goals. However, the company is able to exert significant pressure on the state. If the arbitral tribunal finds that El Salvador violated its domestic investment law with respect to its treatment of Pacific Rim, it will be forced to pay a significant award. Moreover, if the investor is successful in the arbitration process, this may encourage other mining companies affected by the ban to launch arbitration proceedings of their own.2
What is the impact of investment arbitration on the ability of the anti-mining movement in El Salvador to achieve its goals? More generally, how do the international investment regime and IIAs affect domestic resource conflicts? In this article, I argue that the impact of these agreements depends on the position of the state vis-à-vis the resource conflict in question; there is no guarantee that the state’s perceived interests will correspond with those of communities in a dispute with a foreign mining company (Shipley 2014). When the state perceives extractive activity as central to its national interests, IIAs will serve to bolster the state’s commitment to the investment by creating an extra layer of legal protection—in other words, it will act as an effective “hands-tying” mechanism, ensuring the state will respect the investors’ rights. Moreover, turning to legal dispute settlement may provide the executive with an excuse to avoid giving in to domestic demands that electoral pressure might otherwise force them to do (Allee and Huth 2006; Putnam 1988). However, if the state becomes opposed to the existence or expansion of extractive activity within its territory, IIAs can limit the government’s responsiveness to domestic pressure if the state is sensitive to the costs imposed by the arbitration. This in turn impedes the ability of domestic nonstate actors such as anti-mining movements to influence the state’s policies toward the extractive industry. The latter scenario has played out in the conflict surrounding Pacific Rim’s attempts to exploit a mine site in El Salvador. By means of both electoral pressure and emphasizing widely acknowledged environmental vulnerabilities, the anti-mining movement was able to convince key state actors that extractive activity was not in the national interest. However, Pacific Rim’s lawsuit and the threat posed by further arbitration proceedings have thwarted the achievement of the movement’s ultimate goal—a law permanently banning mining.
The rest of the article proceeds as follows. The next section gives an overview of the international investment protection regime and discusses the concepts of domestic policy space and regulatory chill as they relate to investment arbitration. Afterward, I provide a more detailed look at investment arbitration cases related to the extractive industry. The following section presents the case study of El Salvador v. Pacific Rim, which is based on two months of field research, during which I conducted fifteen semistructured interviews with civil society members and government officials in El Salvador, as well as an analysis of the legal documents related to the arbitral proceeding. In the final section I draw conclusions.
Investment Protection and Domestic Politics
The Investment Protection Regime
International investment agreements—either bilateral investment treaties or the investment protection chapters in trade agreements such as NAFTA—govern state behavior toward foreign investors. Most such agreements are signed between developed, capital-exporting “home” states and developing, capital-importing “host” states, which reflects the original raison d’être of these agreements: to protect foreign investors in politically unstable developing states that lack an independent judiciary, and in turn, to increase much-needed capital flows to developing countries (Elkins et al. 2006). Unfortunately for host states, the effectiveness of these agreements in actually increasing FDI inflows continues to be a matter of debate, with some studies suggesting that while there may be a correlation between signing IIAs and inward FDI, the direction of causation is unclear (Aisbett 2009; Tobin and Rose-Ackerman 2011).
IIAs commit host states to investment protection by means of substantive provisions and investor-state arbitration. The former include guarantees of national treatment and most-favored-nation treatment, ensuring that investors from one country are not be treated any less favorably than those from another country or than domestic firms (UNCTAD 2007). Most investment treaties further contain provisions guaranteeing “fair and equitable treatment” of foreign investors and prohibit both outright and indirect expropriation (regulatory takings)—in which a state deprives the investor of the value of its investment via regulatory measures (OECD 2004). Investors can challenge measures they perceive to have violated these provisions via arbitration. If an investor wins, the state must pay the investor damages set by the arbitral tribunal.
IIAs and the Domestic Policy Space
IIAs govern the treatment of foreign investors by the host state, and therefore explicitly limit the domestic policy space, defined by Mayer (2009) as the combination of de jure sovereignty and de facto national policy autonomy. Involvement in international regimes, he argues, weakens the state’s de jure sovereignty by reducing its policy options across a wide array of issue areas. IIAs explicitly limit de jure sovereignty by prohibiting treatment of investors that would violate the aforementioned provisions, and they have quite broad scope; the wording of provisions in the investment treaties themselves is vague—there is, for example, much debate about the meaning of “fair and equitable treatment” (Kingsbury and Schill 2009; Mayeda 2007)—and critics claim arbitrators are adopting an increasingly “expansive” interpretation of treaty provisions (Van Harten 2013). Additionally, Tucker (2015) finds that arbitral tribunals tend to side with states that “behaved in a business-like … fashion” (160), suggesting a normative dimension to treaty interpretation that favors a limited state.
Critics of IIAs argue that these agreements limit the policy space to an undesirable degree and contribute to so-called “regulatory chill,” which in its most likely form occurs when a government is made aware that investors may turn to arbitration if a measure is taken, and thus refrain from enacting it (Tienhaara 2011; Yazbek 2010). Tienhaara (2011) argues that a number of factors increase the likelihood of regulatory chill, including the high costs associated with arbitration3 and the uncertainty regarding the outcome of the case. Therefore, she argues, “the notion that regulators operating under such conditions will simply move forward with confidence about their pending ‘victory’ in a dispute is highly implausible” (615). Indeed, regulatory chill appears to be at work in a growing number of cases.4
The impact of arbitration on the policy space is important, given the nature of the disputed measures; IIAs allow investors to challenge measures that are taken by the state in its capacity as a public actor, and therefore, although only the state is technically implicated in the dispute, a much wider range of stakeholders may be indirectly affected. However, investment tribunals have been largely unwilling to take third-party concerns into account, and even human-rights-based arguments have rarely been considered seriously by arbitrators (Shipley 2014). Moreover, the argument that a state has taken action in response to public pressure is not often accepted by the tribunal as legitimate; for example,
As the Metalclad case demonstrates, measures arbitrarily or hastily applied in response to community outrage can be considered expropriatory under NAFTA if specific representations were made to the investor with respect to the legality of a project later found to violate municipal standards (Shipley 2014, 22)
Of course, we cannot assume that the state has an interest in responding to domestic pressure at the expense of foreign investors. As Shipley (2014) notes, governments may hesitate to defend domestic groups’ rights even when they are given standing in international law, because this “can be subsequently taken as an admission or recognition by the state of its responsibilities towards indigenous peoples before both municipal courts and the international human rights tribunals” (34). Moreover, many states have gone to great lengths to attract FDI in the extractive sector, and national governments may have more incentive to side with the investor over anti-mining activists and mining-affected communities (Bebbington et al. 2008). Therefore, as the work on two-level games suggests, referring to IIAs and the threat of arbitration can be a form of “political cover” that allows states to resist domestic pressure to take measures against an investor (Allee and Huth 2006; Putnam 1988; Tienhaara 2011). Therefore, in providing international legal support for the state’s pro-investment preferences, IIAs may also weaken the ability of domestic groups to pressure the state.
Nevertheless, states continue to take measures that are subsequently challenged by investors, indicating shifts in state preferences toward (a specific) investment. In the following section, I discuss investor-state disputes, community-company conflicts, and what I call investor-state-community conflicts. These occur when nonstate actors shift state preferences toward investment, so that community-company conflicts become the cause of investor-state disputes.
Conflict in the Extractive Industry
Investor-state disputes are concentrated in the extractive industry, with approximately 25 percent of all known cases related to oil, gas, or mining projects.5 This is unsurprising, because extractive projects, given the large capital investments required upfront and the fact that projects are literally tied to the ground, are particularly vulnerable to expropriation, and state actors may be tempted to provide favorable conditions to attract investors and later to change these conditions to extract greater rents from the project (Hajzler 2012). This is especially common when mineral prices are high, and the state sees an opportunity to impose unforeseen windfall taxes (Hajzler 2012).
Measures that provoke an investor-state dispute include outright expropriation; the cancellation of or refusal to grant a license; the imposition of new taxes; or other contractual changes or disagreements (Phillips Williams 2014). In these disputes, the conflict arises from a shift in state preferences toward (the) investment, but this does not necessarily imply that the state is acting at the behest of nongovernmental domestic actors. For example, the impetus for changes to a contract or the imposition of new taxes may come from within related ministries or government agencies. Moreover, few of these cases are based on the state’s outright rejection of the extractive industry; it appears that state actors generally wish merely to accrue greater benefit from these investments for the state, rather than to reduce extractive activity.
However, a handful of arbitration cases, including those in which the state has refused to grant an exploitation license to the company, relate to environmental regulation or the disruption of operations due to anti-mining group activity. These cases overlap with the domestic resource conflicts with which we are more familiar.
Encouraged by high commodity prices and a liberalization of mining codes and related regulation, mining activity greatly increased in Latin America and Africa in the late 1990s and early 2000s, accompanied by significant social conflict (Haslam and Tanimoune 2016). Currently, the Observatorio de Conflictos Mineros en America Latina lists 208 active mining conflicts in Latin America alone.6
Arellano (2011) distinguishes between two types of mining company-community conflicts. First, there are those he calls “all-or-nothing” conflicts—in other words, those in which the participants are genuinely anti-mining. These conflicts arise, he claims, when communities perceive that they have (and prefer) alternative means of economic livelihood and see mining as a threat to these activities. These conflicts are often framed in environmental terms, although they may in fact relate primarily to economic concerns (Bebbington and Bebbington 2009). The goal of anti-mining groups in these “all-or-nothing” conflicts is to prevent any mining activity from taking place. The other type of conflict that Arellano identifies is not based on an outright rejection of mining, but the desire of local communities for greater access to its financial benefits. Similarly, in a large-N study of mining conflicts in Latin America, Haslam and Tanimoune (2016) find greater levels of conflict in areas in which large mining operations compete with local communities for scarce resources such as water. Therefore, both economic and environmental concerns seem to play parts in the generation of community-company conflicts.
While an in-depth analysis of the conditions under which a state will align its preferences with those of anti-mining domestic groups is beyond the scope of this article, it is possible to identify cases that I would describe as community-investor-state conflicts—in other words, conflicts between companies and communities or anti-mining social movements that then form the basis of an investor-state dispute. These are cases in which there is a clear link between anti-mining social movements at the domestic level and the decision of the state to go through with the investor-state arbitration process.
Based on an overview of investment arbitration cases related to extractive industries, some initial patterns emerge.7 Nearly all of these community-investor-state conflicts center on environmental issues and can be understood, at least on the surface, as all-or-nothing cases (Arellano 2011). Additionally, in the cases of Pacific Rim v. El Salvador, Bear Creek v. Peru,8Infinito Gold v. Costa Rica,9 and Bilcon v. Canada,10 opposition to the respective mining project has been cited as an election issue (either national or provincial), and the state measures challenged by the investor were taken just prior to, or shortly after, an election. Moreover, in both El Salvador and Costa Rica, public opinion polling showed widespread opposition to mining.11 Therefore, it may be that when resource conflicts become politically salient enough to have an impact on an election, this encourages state actors to shift their preferences (at least temporarily) away from the promotion of extractive activity, which can in turn generate investor-state conflicts. Finally, the position of the extractive industry in the national economy likely has an impact on the openness of state actors to anti-mining movement demands. As will be discussed below, El Salvador does not have a long history of mining, and in both Costa Rica and the Canadian province of Nova Scotia where the Bilcon quarry was to be located, there is an emphasis on eco-tourism, which does not align well with extractive activity. In this regard, therefore, the Bear Creek v. Peru case is an outlier, since Peru hosts large amounts of investment in the mining industry, and successive governments have promoted the sector (Arellano 2011; CIPMA and IDRC 2002). However, the proposed mine’s proximity to Lake Titicaca, a tourist destination, and the violent nature of the protests may have contributed to the salience of the anti-mining protests in this case.
Therefore, while this is certainly an area for further research, there are clearly a number of commonalities among the community-investor-state conflicts in the mining industry. The case study presented in the following section fleshes out these observations.
Pacific Rim v. El Salvador
This section focuses on the investor-state dispute between El Salvador and Pacific Rim. Central to the dispute is El Salvador’s decision to suspend the issuing of mining permits. In this case, electoral mobilization was based on a fear of environmental damage, and in particular, on water scarcity, which would be exacerbated by mining activity. Additionally, it is likely that El Salvador’s lack of historical reliance on mining contributed to the willingness of state actors to embrace an anti-mining perspective. However, despite this fortuitous convergence of factors, the anti-mining movement has not been able to achieve its ultimate goal—legislation that would permanently ban mining in the country.
Background to the Conflict: Electoral Competition and Mining
Following the 1989–1992 civil war, El Salvador made significant attempts to liberalize its economy and attract foreign investment. These initiatives, spearheaded by the conservative Allianza Republicana Nacionalista (ARENA) party, which governed from 1989 to 2008, included the writing of a new investment law in 1999 containing an arbitration provision. Successive ARENA governments then signed twenty-four IIAs with developed and developing country partners, and the country joined CAFTA in 2004. The attraction of mining was also part of this liberalization process, and in 1996 the government rewrote the mining law to decrease royalties and streamline the process of applying for permits. By 2006, eight foreign gold-mining companies were operating in some capacity in the country, primarily conducting exploration in the provinces of Cabañas and Chalatenango.
The Frente Farabundo Martí para la Liberacíon Nacional (FMLN) has been the main opposition party since 2004, when it first participated in presidential elections, and has been the dominant party in the poorer provinces of Cabañas and Chalatenango, which bore the brunt of government repression during the civil war (Wood 2003). However, in 2009 the FMLN’s center-left candidate Mauricio Funes won the presidential election. Funes’ victory marked an ideological shift in a country that has traditionally been to the right of many of its Latin American neighbors (Spalding 2011).
Discussions on the role that mining should play in the country’s development accompanied this leftward shift. Mining has a small historical presence in El Salvador and never contributed substantially to the economy (Spalding 2011). The presence of foreign mining companies worried local communities and organizations, which eventually came together under the banner of the Mesa Nacional Frente a la Minería Metálica (National Round Table Against Metals Mining) in 2005. Their resistance campaign, later joined by the Catholic Church, international and national NGOs, and Salvadoran universities, has proven quite successful. The national anti-mining mood has had a clear impact on the prospects of mining companies in the country, as political actors at the highest levels turned against mining.
The Community-Company Conflict
The conflict between local communities and Pacific Rim began with resistance at the local level, but has transformed into a national conflict in which the movement advocates for a legal ban on mining. The primary actor has been the Mesa, which brought together numerous community organizations under its banner. They fairly quickly founded a movement in which “everyone is involved … in the first place the affected communities, the Church is involved at the national level, and research institutions and universities are against mining.”12 The domestic stakeholders in this conflict exist at the local and national levels, and range from traditionally disadvantaged groups to some of the most influential actors in the country. Despite this heterogeneity, there is a high degree of coherence in their shared concerns.
The groups with the most at stake in the conflict are the local communities that would be directly affected by mining operations. These communities, located in the province of Cabañas, make their living primarily from subsistence farming, and thus rely heavily on local surface water for crops, livestock, and personal consumption. However, El Salvador suffers from a lack of access to drinking water, and most surface water in the country is severely contaminated (McKinley 2009). According to Pacific Rim’s own assessment, the project would use 908,499 liters of water per day—what the average Salvadoran family uses over a 20-year period (Wilson 2010). Thus, the threat of water shortages and further contamination of drinking water was a significant concern for local communities.
However, water shortages and contamination are also a national issue, and the proposed mine was to be situated on El Salvador’s main waterway, the River Lempa. This contributed to the anti-mining movement’s successful engagement with domestic institutions at the national level. Notably, the Ombudsman for the Defense of Human Rights (PDDH, for its Spanish initials) has been involved with the work of the Mesa since 2005 and has adopted an official stance against mining and investment arbitration. The support of the Catholic Church has also contributed significantly to the movement’s success; Catholicism is the country’s dominant religion, and the institution enjoys high institutional trust scores among opinion poll respondents. Therefore, “the call by Salvadoran bishops for greater environmental protection … presented the mining industry with a serious challenge” (Spalding 2011, 21). Finally, on the political level, the FMLN’s strong support base in the provinces of Cabañas and Chalatenango—the regions affected by potential mining activity—have incentivized the party to adopt an anti-mining line, and a number of FMLN deputies were directly involved in the activities of the Mesa.13
State Interests and the Extractive Sector in El Salvador
The Mesa and allied actors were successful in placing mining on the national agenda. But how was the decision made to suspend mining activities and proceed to arbitration against Pacific Rim? What made a state that had put significant effort toward creating an investment climate friendly to outside investment take anti-investor measures? I argue that the Mesa’s success in making mining an election issue, combined with a lack of history of mining in the region and an institutional ambivalence toward the industry, made it possible for state actors to adopt anti-mining preferences.
The Mesa’s efforts to convince various important domestic institutions and the broader public that mining was not appropriate for El Salvador coincided with the shift leftward in the nation’s political mood, and in 2007, a public opinion poll taken by the Universidad Centroamericana in San Salvador recorded that 63 percent were against mining (Durán 2007). This put significant pressure on Saca’s right-wing ARENA party in the lead-up to the elections, which likely contributed to his efforts to “publicly distance his administration from some traditional party positions… [including] his emerging position on the mining concessions which he began to question publicly in 2008” (Spalding 2011, 29). Opponent Funes’ adoption of an anti-mining position reflects the FMLN’s traditional support base among rural peasants. The role of electoral pressure in the decision to announce the mining suspension was emphasized by interviewees who doubted the sincerity of Saca’s anti-mining position.
While the political utility of an anti-mining position in the lead-up to the 2009 elections is clear, it is important to note that mining was new to El Salvador; in the early 2000s, as Pacific Rim was applying for exploitation permits, no studies had been carried out regarding the viability of mining in the country, and observers criticized the government for not having a clear position on mining (Pacas 2007). When faced with the strong opposition to mining from the public, as well as a growing understanding of the potential for environmental damage posed by mining, the government had to develop a policy position in a fairly ad-hoc manner.15 Indeed, as this failure to seriously consider the possibilities of mining implies, extractive industries never played a significant role in El Salvador’s economic development plan.16 Therefore, the lack of reliance on mining may have allowed El Salvador to be more receptive to anti-investor public pressure in this case.
The Investor-State Dispute
Pacific Rim Mining Corp. began exploration activities in El Salvador in 2002. During 2004–2005, the company began the process of obtaining an exploitation license from the Ministry of Economy’s Bureau of Hydrocarbons and Mines. In 2006, the company submitted its final environmental impact statement (EIS), believing that the license would be granted imminently.17 However, in the arbitration proceedings, the government contests that the company submitted all required documents. First, the government contends that Pacific Rim never successfully completed the purchasing of the concession site from local owners, and was thus unable to provide proof of legal ownership of the entire site.18 The government further argues that the company did not adequately meet other environmental requirements to be granted a permit, and allowed its exploration licenses to expire in 2005.
From December 2006 until 2008, the Ministry of the Environment and Natural Resources (Ministerio de Medio Ambiente y Recursos Naturales or MARN) and other government agencies ceased official communications with the company. According to a member of El Salvador’s legal defense team, in 2007 the company first threatened the government with arbitration, and shortly thereafter, El Salvador engaged the legal services of the Washington firm Dewey & LeBouef LLP.19
In 2008, President Saca held a press conference at which he stated his intention to revisit the legal framework of mining in the country. During the election campaign, FMLN candidate Mauricio Funes publicly stated that no new mining permits would be granted, were he to win the election. Subsequently, the company reached out to both President Saca and President-elect Funes to determine whether a negotiated solution could be reached.20 However, a number of interviewees suggested that the company’s only interest was in the granting of the mining concession; they would not accept a negotiated monetary settlement.21
Arbitration commenced in early 2009. In its Notice of Arbitration, the company claims that despite the delays in the process of granting a permit, it was not aware of a dispute with the government until Saca’s so-called “de facto ban” on mining. Therefore, the main “measure” at issue in the case is the broader policy shift in the country, and not the administrative inadequacies. El Salvador argues that this decision was based on recognition of its lack of technical capacity to properly regulate the mining industry, and that this position is supported by the precautionary principle required by the Salvadoran Constitution.
In recognition that Pacific Rim is ultimately a Canadian corporation,22 the tribunal denied jurisdiction to the claim under CAFTA, but allowed the process to continue under El Salvador’s domestic investment law. The arbitration is ongoing, with the most recent round of hearings ending in September 2014.
The Impact of the Arbitration Case on the Anti-mining Movement
The anti-mining movement has been relatively successful; as one interviewee explained, “there is a law that permits mining, there are mining companies that want to exploit minerals, all the economic conditions exist for mining to take place. But the [anti-mining] stance of the communities and pressure from the people do not allow for it.”23 Indeed, both President Funes, and his FMLN successor, Sanchez Cerén, have upheld the mining suspension. In 2010, the Minister of the Environment noted that he had seventy requests for mining permits, but none had been granted (MARN 2010). In 2011, MARN finalized a report stating that under current conditions, mining was not feasible in El Salvador, and the ministry maintains its policy of not issuing mining permits (Tau 2011). This report forms the basis of the country’s mining policy, giving evidence-based support to the shifting policy on mining.24
However, mining still remains a possibility for El Salvador, since no legislation prohibiting it has been passed, or even seriously discussed by the Legislative Assembly, despite pressure from the Mesa and support from FMLN deputies.25
What has prevented the government from passing legislation to ban mining? A number of actors have suggested, both in interviews with the author and via the media, that the arbitration proceeding has prevented the development of an official mining policy. However, as was mentioned above, when faced with domestic demands to which they do not wish to accede, governments may rely on international commitments as a “political cover.” In this case, the Salvadoran government may publicly blame the arbitration case and the threat of future cases for its lack of action on anti-mining legislation to avoid losing the support of its anti-mining base, while in reality acceding to the demands of other actors—for example, the domestic business sector, which may not support a mining ban.
However, the empirical evidence does not support this hypothesis. First, the FMLN has enacted policies that have been quite unpopular with its base, including a law to attract investment in public-private partnerships (ContraPunto 2013). This suggests that the current government does not refrain from enacting policies that its traditional voters do not support, and that the suspension of mining is based not solely on electoral pressure, but on legitimate environmental concerns. Moreover, in 2013 El Salvador removed the provision allowing for international arbitration from its domestic investment law—an act that could certainly be interpreted as antibusiness by both foreign and domestic investors.
However, most convincing is the lack of domestic business support for the extractive industry. As officials in both the Ministry of Economy and the state’s investment promotion agency explained, El Salvador has not recently prioritized the extractive sector, and the domestic business elite does not have a stake in mining. Indeed, concerns regarding water use are not confined to peasant farmers but are shared by industrial agricultural producers,26 and according to Bebbington et al. (2015, 198), “national and local debates over mining … influenced the language of the national business community…. For example, a representative of the National Association of Private Enterprise commented, ‘we are not going to go out and support Pacific Rim.’ ” In a recent article, Broad and Cavanagh (2015) make the same argument. Based on interviews with government officials and private sector actors, they conclude that “few entrenched local business leaders [are] strongly invested in mining” (422). Following the mining suspension, they note, the only active pro-mining lobbyists were those hired by the foreign companies, and “the lack of active domestic elite participation was seen as a significant statement of the weakness of the domestic elite supporting mining, especially in comparison to the strength of the opposition to mining” (Broad and Cavanagh 2015, 422). Therefore, it does not seem likely that the lack of an anti-mining law can be attributed to domestic business sector opposition.
In fact, the arbitration case has played a role in stalling decision-making regarding the status of mining in the country. This is in part due to the fear that passing legislation officially banning mining would provoke further arbitration cases. Over twenty-five mining companies have had concessions granted to them, and while the administrative processes regarding their permits are currently suspended, the fear of provoking additional lawsuits has impeded the government from promoting a law to officially ban mining.27 This statement was echoed by Yanira Cortez, deputy attorney for the environment in the PDDH office, in an interview with The Guardian: “There are so many permits on standby right now, so there is fear that these companies will follow the lead of Pacific Rim.”28
Another interviewee also suggested that the state analyzed the situation and decided that “in this moment we can’t pass a law [prohibiting mining] because it would be counter-productive in the case against Pac Rim.”29 Similarly, one of El Salvador’s legal counsels stated,
That there is no official position on mining is in part due to the arbitration. There are two bills currently before parliament, one is a moratorium and one is an outright ban that would prohibit metallic mining. The government has not taken action on either one, in part because they are waiting for the arbitration to be over.30
One reason for this may be that in the context of the arbitration, the defense’s argument relies primarily on proving that Pacific Rim did not meet the technical requirements for an environmental permit to be granted, or complete its feasibility study; failed to adequately address the concerns of the local communities as well as outside experts; and did not complete the purchase of the land required for their operations.31 Moreover, El Salvador argues that numerous external experts advised MARN to suspend mining activity, due to the ministry’s lack of technical capacity to ensure that it did not cause environmental damage and to the constitutional requirement of adopting a precautionary principle toward protecting the environment and human health.32 However, MARN’s report on mining was only completed in 2012, and as was mentioned above, the proposed law that would at least make official the moratorium on mining has not been passed by the legislature. Therefore, the defense argues that
El Salvador’s decisions regarding metallic mining in general and Pac Rim’s environmental permit specifically did not have any impact on Pac Rim … El Salvador’s policy decision did not affect any rights with regard to exploration licences because Pac Rim did not have a right to the exploration licenses for which it claims damages.33
Thus, in the context of the arbitration case, El Salvador is attempting to underline the technical aspects of its decision-making regarding Pacific Rim’s application for an exploitation license, rather than the political contestation that I have argued contributed first to President Saca’s decision to announce a de facto ban on mining, and then to President Funes’ declaration that no mining would take place were he to be elected, as well as his subsequent continuation of this ban. Of course, this does not discount the legitimate concerns that MARN had about its own technical capacity to monitor the mining industry, or any problems with Pacific Rim’s license application; I do not claim that these considerations played no role in the state’s decision-making. However, in front of the tribunal, the defense has made a concerted effort to deny the claimant’s position that the decision to withhold Pacific Rim’s license was a political one. If a law banning mining had been passed after the company had first threatened arbitration, this could undermine the state’s argument that it based its decision on technical criteria, and that “there was never, as the Claimant alleges, a ‘ban’ … on metallic mining. Rather … El Salvador made the reasonable decision to suspend the review of applications for environmental permits related to metallic mining.”34
This emphasis on the technical aspects of decision-making is likely due to the lack of value that arbitral tribunals have historically placed on a state’s political considerations. As was mentioned above, measures that are seen to be applied hastily due to political pressure are not considered legitimate under the IIA regime,35 and indeed the normative content of the IIAs and arbitral decisions privileges technical criteria over political considerations (Tucker 2015; Yazbek 2010).
However, it is clear that political considerations did play a role in state actors’ decisions in this case, and the anti-mining movement deserves credit for drawing national attention to the issue. Indeed, even if MARN and other government agencies had been debating the merits of mining for a few years, the timing of Saca’s announcement says much: As Saul Baños, the lawyer for the Mesa argued, “Knowing the record of [President Saca], I can say that … it was a political question. It’s not the same as if he had done it at the beginning of his mandate.”36
The investor-state dispute between El Salvador and Pacific Rim began with the conflict between local communities and the company. Genuine environmental concerns, the lack of a history of mining in the country, and the ability of the Mesa to make mining a national issue in the run-up to a highly contested election all contributed to the adoption by the state of the movement’s preferences toward mining. Thus, as in the other investor-state-community conflicts mentioned above, the community-company conflict became the basis of the investor-state arbitration case that began in 2009.
As I argued above, only in cases in which the state adopts the preferences of communities in disputes with extractive companies does the investment protection regime have an impact on anti-mining movements. In the (more common) cases in which the state is unresponsive to community demands, IIAs will merely serve to strengthen the protection of the foreign investors in a context in which the state has an interest in attracting and protecting mining investment.
In the case discussed here, however, the investment protection regime has had a direct impact on the movement’s ability to achieve its ultimate goal—the adoption of legislation that would permanently ban metallic mining in El Salvador. This suggests that the concept of regulatory chill may be extended to include the effect of ongoing arbitration on domestic policy-making, rather than just on failure of a state to take a measure after being threatened with arbitration by investors. Indeed, uncertainty regarding the outcome of the arbitration, the possible detrimental effect of passing legislation while proceedings are ongoing, and the fear that additional arbitration cases could be triggered by an outright ban have discouraged the state from pursuing anti-mining legislation and diminished the victory of the Mesa. It remains to be seen whether in the future the Salvadoran state will continue to be receptive to public pressure or will revert to a more conservative stance vis-à-vis foreign investment in the extractive sector.
More broadly, this case illustrates the ways in which domestic social conflicts may be affected by transnational rules and actors. The legal obligations on states to respect investors’ rights reduces the ability of governments to respond to the demands of local groups and resolve domestic conflict in a way that corresponds with the preferences of these actors. Resource conflicts in which from the outset the state is unreceptive to local community concerns often turn violent, and in the face of a state constrained by international legal obligations, anti-mining movements have fewer options to advocate for themselves via nonviolent political means.
Pacific Rim is now owned by OceanaGold, an Australian company that bought Pacific Rim during the arbitration process.
It is often suggested that there is a “piling on” effect of multiple investors suing a state for one measure, once they see that one arbitration proceeding is successful (Simmons 2013).
These include both the arbitral award itself, which can frequently be tens or hundreds of millions of dollars, as well as the legal costs of the defense, which average US$ 8 million (Gaukrodger and Gordon 2012).
A number of well-known cases exist: Canada allegedly had plans to introduce plain-packaging laws for tobacco, but backed down following the threat of arbitration, and New Zealand, Namibia, Ghana, Togo, and Uganda have faced similar warnings.
While onshore oil/gas projects and mining projects have similar impacts on local communities and are met with similar types of resistance, I focus on mining conflicts.
This research was undertaken as part of a broader project on investor-state disputes.
Stephanie Boyd: Conflict at Canadian Mines in Peru Highlights Empty Promises of Climate Talks, The Georgia Straight, December 5, 2014. Available at http://bit.ly/1zx7Scx, accessed September 14, 2016.
Leslie Josephs, Costa Rica Gold Mine Stalled by Environmental Claims, Reuters, April 26, 2010. Available at www.reuters.com/article/2010/04/26/costarica-mining-idUSN2614311620100426.
William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada, UNCITRAL, PCA Case No. 2009–04.
Mining Watch, available at www.miningwatch.ca/node/7199.
Author’s interview with Rodolfo Calles, July 14, 2014.
Author’s interview with Edgardo Mira, July 29, 2014.
Author’s translation from the Spanish.
Pac Rim Cayman LLC v. The Republic of El Salvador, Counter-Memorial on the Merits, ICSID Case No. ARB/09/12.
Author’s interview with anonymous Salvadoran governmental official, July 18, 2014.
Pac Rim Cayman LLC v. The Republic of El Salvador, Witness Statement of Thomas C. Shrake, ICSID Case No. ARB/09/12.
Pac Rim Cayman LLC v. The Republic of El Salvador, The Republic of El Salvador’s Preliminary Objections, Shrake, ICSID Case No. ARB/09/12.
Author’s interview with member of El Salvador’s defense team, September 15, 2014.
Witness Statement of Thomas C. Shrake.
Author’s interviews with Saul Baños, August 13, 2014, and Luis Parada, September 14, 2014.
Pacific Rim opened a letterbox company in the US in 2007, just prior to the dispute with El Salvador, but had no business activity there.
Author’s interview with Rodolfo Calles, July 14, 2014.
Emily Achtenberg, A Mining Ban in El Salvador? NACLA Report on the Americas, Sept/Oct 2011. Available at https://nacla.org/article/mining-ban-el-salvador, accessed September 14, 2016.
Author’s interview with Edgardo Mira, July 29, 2014.
Author’s interview with FMLN advisor, August 15, 2014.
Author’s interview with Oxfam America employee, August 12, 2014.
El Salvador Groups Accuse Pacific Rim of “Assault on Democratic Governance.” The Guardian, April 10, 2014. Available at http://bit.ly/1qxn5oc, accessed September 8, 2016.
Author’s interview with anonymous PDDH official, July 23, 2014.
Author’s interview with member of El Salvador’s legal defense, September 15, 2014.
Counter-Memorial on the Merits.
Counter-Memorial on the Merits, 125.
In the recently concluded Bilcon v. Canada case, the claimant made similar arguments regarding the state’s political motivations for denying an operating permit, and won.
Author’s interview with Saul Baños, August 13, 2014.
This article has benefited greatly from the comments of the anonymous reviewers, as well as from those of Megan Pickup the participants in the workshop “The State and Beyond: Actor Constellations in Resource Conflicts,” held at the German Institute of Global and Area Studies in July 2015.