Is Free Trade a Gold Mine?

THE PRICE TAG ON FREE TRADE is rising in El Salvador.

A Canadian mining corporation is suing the government there to recoup more than $100 million in lost investments and unrealized profits. The case is a test of the “investor rights” provision of the Central American Free Trade Agreement (CAFTA). The Vancouver-based Pacific Rim Mining Corporation wants to reopen El Salvador’s El Dorado gold mine but popular opposition has compelled the government to block it. Now, if an international arbitration board finds in favor of the corporation, Salvadoran President Mauricio Funes would be obligated to reimburse the company’s previous investments plus profits it would theoretically have earned if the mine opened. The Salvadoran anti-mining movement is urging Funes, just a year into his term, to refuse payment if his government loses the case.

Consumer and environmental advocates are concerned that a Pacific Rim victory could embolden foreign corporations to challenge labor and environmental standards by filing claims under CAFTA.

“Governments will be determining what they can and can’t do based on potential suits against them,” says Vicki Gass, senior rights and development officer at the Washington Office on Latin America. “They will think twice about any social policy that benefits the population over investors.”

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The El Dorado gold mine in the department of Cabañas is part of a fifty-kilometer-wide band of gold stretching through Guatemala, El Salvador, and Nicaragua parallel to the Pacific Coast. The nearest town is San Isidro, where most people survive by farming small plots or working as ranch hands. To the eyes of an outsider, the terrain is formidable. Barely paved country roads twist around impossibly steep hills covered in a lush maze of tropical vegetation. Farmers face an incessant battle against vines, weeds, and poverty to make agriculture possible. Most of them live on less than $2 per day.

When the government granted the company an exploration permit in 2005, Pacific Rim began drilling exploratory holes just outside of San Isidro. According to Vidalina Morales from the National Roundtable Against Metallic Mining, that’s when Pacific Rim representatives began pressuring local farmers to sell or lease their land to the company. Conflicts arose between mining contractors and residents who live on top of the prominent gold deposits. Many residents feared mining would contaminate their water and destroy their ability to farm.

A bold and highly organized resistance movement in opposition to Pacific Rim’s presence gained momentum when a wealthy rancher saw his water supply dry up after exploration contractors drilled nearby.

But some residents welcomed the mining company and the influx of jobs and cash it would bring. Dormant political tensions and feuds dating back to the country’s bloody civil war in the 1980s were reignited by the mine.

“People who live in the conflicted areas have told us, ‘Before the company came in, we lived in harmony. We lived in peace,’ ” says Morales. “Of course the company will never admit any responsibility, but for us there is no doubt that things changed when they appeared.”

Members of the low-power radio station Radio Victoria in Cabañas have received numerous death threats, which they attribute in part to their position on Pacific Rim.

In October 2007, according to a timeline circulated by the radio station, it refused Pacific Rim’s offer to fund the completion of their building and buy $8,000 in advertising. Several months later, a Radio Victoria reporter received cell phone threats telling him to stay out of Pacific Rim’s way.

On July 1 last year, the body of environmental activist Marcelo Rivera was found in the bottom of a dry well, covered in lime and chicken excrement and bearing obvious signs of torture. On December 20, Ramiro Rivera (no relation to Marcelo), was killed by four masked men firing from a truck. Two other activists were also killed last December, and in January Radio Victoria activists received a text message saying, “Get ready you damn Radio Victoria people because we already got the first 3.”

Pacific Rim’s website features statements denying any connection to, or knowledge of, the violence, saying the company has been the “target of false accusations made by certain anti-mining groups.” Pacific Rim President and CEO Tom Shrake says the attacks are the result of a family feud. Shrake says in his quarter century in the mining business in Latin America, he has never before had any problems with violence.

“The idea that somehow mining is related to this violence is suspicious at best,” says Shrake. “It is just another attempt to create fear and create this image that there’s this huge violent atmosphere around the question of mining. That’s not the case.”

The company estimates that 1.4 million ounces of recoverable gold sit in the Cabañas area. With gold at about $1,200 per ounce, that means potential profits in the hundreds of millions.

Under Salvadoran law, Pacific Rim would pay 2 percent in royalties for every ounce of gold mined, and a 25 percent tax on profits. Shrake said the mine would mean economic turnaround for a country he describes as “in shambles, coming apart at the seams.” It would, he said, create 600 direct jobs and about 3,000 indirect jobs, and become the biggest taxpayer in the country. Shrake said that by embracing mining, El Salvador could be like Chile, which he says more than doubled its GDP in the 1990s thanks to foreign investment in copper mines.

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But Pacific Rim opponents say the environmental and social consequences aren’t worth any amount of money. They fear contamination from the cyanide used in the mining process, and acid mine drainage—acid runoff created when compounds within the ore are disturbed and exposed to oxygen. Aside from contamination, mining also uses massive amounts of water—about 250,000 liters per hour for a medium-size operation. Though El Salvador is a rainy country, lack of infrastructure, deforestation, and other issues have caused a critical shortage of clean water for the dense population.

“The Pacific Rim mine will use more water in half a second than most Salvadorans use in a day,” says Angel Ibarra, director of the National Ecological Union, which recently released a report finding 1.5 million Salvadorans—more than a quarter of the population—do not have access to potable water.

Shrake says the mine would not cause environmental problems or deprive locals of fresh water. At fifty-six, Shrake sees himself as an environmental advocate.

“We are the children of the ’60s, the ones who started the environmental movement,” he says. “There’s nothing that pisses me off more than pollution, contamination, the lack of intelligence that goes into the entire economic system when it comes to environmental protection. But the arguments here have gotten completely misplaced.”

Shrake says the company is a good neighbor that values environmental sustainability and local well-being. He cites the Techo project, which involves building houses for locals, environmental stewardship and reforestation programs, a dental and eye clinic that served more than 1,000 youth, literacy classes, road-building, and other efforts funded by the company.

“There is a small but loud and emotional group against mining that will always be against mining, but the vast majority of the country and especially in the San Isidro/
Sensuntepeque area are in favor of responsible mining and the economic benefits it will provide,” Shrake says.

The company’s notice of arbitration says the country’s 1999 mining law ensures that if a company carries out exploration and proves there are mineable minerals, it has the right to receive permits for “exploitation” of the mineral. (“I hate that word,” says Shrake.) The document says Pacific Rim went through all the necessary steps, including addressing concerns raised in 2005 public hearings and by the government, so its rights were violated when the government stalled and then decided not to grant the permits to mine.

In March 2008, then-president Tony Saca said he would not grant new mining licenses. “I would rather pay the $90 million than issue the permit,” said Saca, a conservative who generally favored opening El Salvador to private foreign investment but realized the political power of the broad-based anti-mining movement.

Funes has reiterated his opposition to mining, saying that he will not authorize permits during his five-year term in office. And on March 11, San Isidro mayor Jose Ignacio Bautista announced his opposition to mining at an environmental forum. Since Bautista is a member of the ARENA party not usually aligned with people’s movements, his stance shows how deeply anti-mining sentiment has penetrated the fabric of daily life.

The company says that under El Salvador’s own laws and under CAFTA (specifically Chapter 10), the government’s refusal to grant permits is an illegal breach of contract, violating Pacific Rim’s rights to an unquantified “fair market value of its mineral rights.” The suit seeks return of the $77 million already invested in the project (including the “good neighbor” community projects), and an undefined amount “far in excess” of the $77 million—plus interest—for the company’s lost profit.

Sarah Edelman of Public Citizen’s Global Trade Watch says it is unclear what El Salvador would do if ordered to pay a huge settlement.

“It’s a country that’s really doing a lot to further education, working hard on a lot of social programs,” she says. “To have to spend that money instead on a settlement would be a really sad thing.”

Chapter 10 claims under CAFTA are heard by a panel of trade lawyers in the International Center for Settlement of Investment Disputes, created by the World Bank. Opponents complain that there is little transparency or oversight of the process.

“Even before CAFTA was approved we spoke out against the dispute mechanisms because of the secrecy issues,” says Gass. “We felt it really undermined the democratic process in the country.”

Meanwhile, El Salvador’s Supreme Court has agreed to debate a case questioning whether being a party to CAFTA violates basic tenets of national sovereignty as defined by the Salvadoran constitution.

Borrowing from Eduardo Galeano, activist Morales said that Pacific Rim’s suing the country is an example of a world “upside-down.” “Instead of a law allowing Pacific Rim to sue our government, they should be sued,” she says. “The company should be made to pay for all the damage they’ve caused to our environment and our community.”

Locals and Salvadoran anti-mining activists are confident the El Dorado mine is dead for the foreseeable future. But Shrake says he fully expects the government to eventually grant the permits so Pacific Rim can start mining. If Pacific Rim doesn’t get the gold in El Dorado, he says, someone else will.

“They could shoot me, and people still will not walk away from that investment,” he says. “There’s a lot of money sitting out there.”

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