Garment
workers in Costa Rica. (Reuters/Juan Carlos Ulate)
This
article is a joint publication of TheNation.com and Foreign
Policy In Focus.
With
Republicans winning big in the midterm elections, the
debate over so-called “free trade” agreements could again
take center stage in Washington.
President Barack
Obama has been angling for “fast track”
authority that would enable him to push the proposed
Trans-Pacific Partnership, or TPP—a massive trade
agreement between the United States and a host of Pacific
Rim countries—through Congress with limited debate and no
opportunity for amendments.
From
the outset, the politicians who support the agreement have
overplayed its benefits and underplayed its costs. They
seldom note, for example, that the pact would allow
corporations to sue governments whose regulations threaten
their profits in cases brought before secretive and
unaccountable foreign tribunals.
So
let’s look closely at the real impact that trade
agreements have on people and the environment.
A
prime example is the Dominican Republic-Central America
Free Trade Agreement, or DR-CAFTA.
Brokered by the George W. Bush administration and a
handful of hemispheric allies, the pact has had a
devastating effect on poverty, dislocation and
environmental contamination in the region.
And
perhaps even worse, it’s diminished the ability of Central
American countries to protect their citizens from
corporate abuse.
A
Premonition
In
2004 and 2005, hundreds of thousands of protesters filled
Central America’s streets.
They
warned of the unemployment, poverty, hun
Ten
years after the approval of DR-CAFTA, we are seeing many
of the effects they cautioned about.
Overall
economic indicators in the region have been poor,
with some governments unable to
provide basic services to their population.
Farmers have been displaced when
they can’t compete with grain imported from the United
States. Amid significant levels of unemployment, labor
abuses continue. Workers in export-assembly
plants often suffer poor
working conditions and low wages.
And natural-resource extraction has proceeded with few
protections for the environment.
Contrary
to the promises of US officials—who claimed the
agreement would improve Central American economies and
thereby reduce undocumented immigration—large numbers of
Central Americans have migrated to the United States, as
dramatized most recently by the influx of children from
Guatemala, El Salvador and Honduras crossing the
US-Mexican border last summer. Although most are fleeing
violence in their countries, there are important economic
roots to the migration—many of which arerelated to
DR-CAFTA.
One
of the most pernicious features of the agreement is a
provision called the Investor-State
Dispute Settlement mechanism. This allows
private corporations to sue governments over alleged
violations of a long list of so-called “investor
protections.”
The
most controversial cases have involved public interest
laws and regulations that corporations claim reduce the
value of their investments. That means corporations can
sue those countries for profits they say they would have
made had those regulations not been put into effect.
Such
lawsuits can be financially devastating to poor countries
that already struggle to provide basic services to their
people, much less engage in costly court battles with
multinational firms. They can also prevent governments
from making democratically accountable decisions in the
first place, pushing them to prioritize the interests of
transnational corporations over the needs of their
citizens.
The
Mining Industry Strikes Gold
These
perverse incentives have led to environmental
deregulation and increased protections for companies,
which have contributed to a boom in the toxic mining
industry—with gold at the forefront. A stunning 14 percent of
Central American territory is now authorized for mining.
According to the Center of Research on Trade and
Investment, a Salvadoran NGO, that number approaches 30
percent in Honduras and Nicaragua—and rises to a whopping
35 percent in Honduras.
In
contrast to their Central American neighbors, El Salvador
and Costa Rica have imposed regulations to
defend their environments from destructive mining
practices. Community
pressure to protect the scarce watersheds
of El Salvador—which are deeply vulnerable to toxic mining
runoff—has so far prevented companies from successfully
extracting minerals like gold on a large scale, and the
Salvadoran government has put a moratorium on mining. In
Costa Rica, after a long campaign of awareness and
national mobilization, the legislature voted unanimously
in 2010 to prohibit open-pit mining and ban the use of
cyanide and mercury in mining activities.
Yet
both countries are being punished for heeding their
citizens’ demands. Several US and Canadian companies have
been using DR-CAFTA’s investor-state provisions to sue
these governments directly. Such disputes are arbitrated
by secret tribunals like the International Center for the
Settlement of Investment Disputes, which is hosted by the
World Bank and is not accountable to any democratic body.
In
2009, the US-based Commerce Group sued El
Salvador for closing a highly polluting
mine. The case
was dismissed in 2011for lack of
jurisdiction, but El Salvador still had to pay several
million dollars in fees for its defense. In a case still
in process, the gold-mining conglomerate Pacific Rim
has also sued El Salvador under DR-CAFTA
for its anti-mining regulations. To get around the fact
that the Canadian company wasn’t from a signatory country
to DR-CAFTA, it moved its subsidiary from the Cayman
Islands to Reno, Nevada, in a bid to use the agreement’s
provisions. Although that trick failed, the suit has moved
forward under an outdated investment law of El Salvador.
Elsewhere,
Infinito Gold has used DR-CAFTA to sue Costa
Rica for nearly $100 million over disputes
related to gold mining. And the US-based Corona Materials
has filed a
notice of intent to sue the Dominican
Republic, also claiming violations of DR-CAFTA. These
costly legal cases can have devastating effects on the
national economies of these small countries.
Of
course, investor-state disputes under DR-CAFTA are not
only related to mining. For example, TECO Guatemala
Holdings, a US corporation, alleged in
2009 that Guatemala had wrongfully interfered with its
indirect subsidiary’s investment in an electricity
distribution company. Specifically, TECO charged that the
government had not protected its right to a “minimum
standard of treatment”— an exceptionally vague standard
that is open to wide interpretation by the international
tribunals that rule on such cases—concerning the setting of
rates by government regulators. In other
words, TECO wanted to charge higher electricity rates to
Guatemalan users than those the state deemed fair.
Guatemala had to pay $21.1 million in compensatory damages
and $7.5 million in legal fees, above and beyond what it
spent on its own defense.
The
US-based Railroad
Development Corporation also sued Guatemala,
leading to the country paying out an additional $11.3
million, as well as covering both its own legal fees and
the company’s. Elsewhere, Spence International Investments
and other companies sued Costa
Rica for its decision to expropriate land
for a public ecological park.
A
Chilling Effect
What’s
at stake here is not only the cost of lawsuits or the
impact of environmental destruction, but also the ability
of a country to make sovereign decisions and advance the
public good.
Investment
rules that allow companies to circumvent national judicial
systems and challenge responsible public policies can
create an effect that’s been dubbed “regulatory
chill.” This means that countries that
might otherwise have curtailed corporate activity
won’t—because they’re afraid of being sued.
Guatemala
is a prime case. It’s had to pay companies tens of
millions of dollars in investor-state lawsuits, especially
in the utility and transportation industries. But it
hasn’t yet been sued by a mining company. That’s because
the Guatemalan government hasn’t limited the companies’
operations or tampered with their profit-making.
Take
the Marlin Mine in western Guatemala, for example. In
2010, the Inter-American Commission on Human Rights
advised the Guatemalan government to close the mine on
account of its social and environmental
impacts on the surrounding region and its
indigenous population. Nonetheless, after briefly agreeing
to suspend operations, the Guatemalan government reopened
the mine a short time later.
In internal
documents obtained by activists, the
Guatemalan government cited potential investment
arbitration as a reason to avoid suspending the mine,
writing that closing the project could provoke the mine’s
owners “to activate the World Bank’s [investment court] or
to invocate the clauses of the free trade agreement to
have access to international arbitration and subsequent
claim of damages to the state.” As this example
demonstrates, just knowing that a company could sue can
prevent a country from standing up for human rights and
environmental protection.
More
recently in Guatemala, the
communities around San Jose del Golfo—about
45,000 people—have engaged in two years of peaceful
resistance to prevent the US-based Kappes, Cassiday, and
Associates from constructing a new mine. Protesters
estimate that 95 percent of families in the region depend
on agriculture, an industry that would be virtually
destroyed if the water were to be further contaminated.
But the company threatened
to sue Guatemala if the mine was not
opened. “They can’t afford this lawsuit,” a company
representative said. “We had a big law group out of
[Washington] DC fire off a letter to the mines minister,
copied to the president, explaining what we were doing.”
On
May 23, the people of San Jose
del Golfo were violently evicted from their lands by
military force, pitting the government in league with the
company against its own people—potentially all to avoid a
costly lawsuit.
A
Prelude to the TPP
Warnings
about the crises that “free trade” would bring to Central
Americans were, unfortunately, correct. Central America is
facing a humanitarian crisis that has incited millions to migrate as
refugees from violence and poverty,
thousands of them children. One push factor is the
environmental degradation provoked by ruthless mining
corporations that are displacing people from their rural
livelihoods.
And
it’s not just DR-CAFTA. The many
investor-state cases brought under the
North American Free Trade Agreement (NAFTA), and in
countries all over the world, have exposed the
perniciousness of investor protection rules shoehorned
into so-called “free trade” pacts. Many governments are
realizing that these agreements have tied their hands when
it comes to protecting their own environments and
citizens.
We
must use these egregious investor-state cases to highlight
extreme corporate power in the region. We must work to
help Central Americans regain livelihoods lost to ruthless
extractive projects like mining. And we must change trade
and investment agreements to stop these excessive lawsuits
that devastate communities, the environment and democracy
itself.
Like
DR-CAFTA, the proposed Trans-Pacific Partnership includes
investor-state provisions that are likely to hurt poor
communities and undermine environmental protections.
Instead of being “fast tracked” through Congress, future
trade agreements like the TPP—and the Transatlantic
Trade and Investment Partnership being
negotiated between the European Union and the United
States—must be subject to a full debate
with public input.
And
such agreements must not, at any cost, include
investor-state mechanisms. Because trading away democracy
to transnational corporations is not such a “free trade”
after all.
Manuel Pérez-Rocha
Associate Fellow
Institute for Policy Studies
Celebrating
50 years of turning ideas into action!
Cel. 240-838-6623
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