February 26, 2010
By Rebecca Dreyfus
In the context of high global prices for natural resources, particularly gold and oil, Latin American governments seeking to increase the benefits of those resources for their own people are finding themselves increasingly targeted by investor lawsuits.
Cases brought by two international mining companies (Pacific Rim and Commerce Group) against the government of El Salvador have been the subject of increasing media and international activist attention in recent months. These cases are two examples of a growing number of mining-related investment disputes in Latin America.
Let’s talk numbers. There are currently 127 pending legal cases registered with the World Bank’s International Center for Settlement of Investment Disputes (ICSID), the most commonly used arbitration court. Latin American governments are the targets of 65 (more than half) of these cases.
Mining companies are targeting Latin American countries particularly heavily. Of 33 ICSID cases related to the extraction or distribution of oil, gold, natural gas or other extractive resources, 20 (61%) are against Latin American governments. To add even more perspective: in 1990, just ten years ago, there were only five mining-related cases open at ICSID and only one of these was against a Latin American government.
The mining cases filed at ICSID vary significantly. The Salvadoran cases were filed under the investment chapter of the U.S. free trade agreement with Central America and the Dominican Republic (CAFTA-DR), while others were filed under bilateral investment treaties. The cases also involve different industries, players and circumstances. However, they all reflect the growing practice among global corporations of bypassing countries’ domestic legal systems and bringing cases over sensitive resource rights issues before unaccountable international tribunals.
The ICSID cases do not even represent the total number of mining-related investor-state cases around the world. That’s because other international arbitration bodies, such as the UN Commission on International Trade Law (UNCITRAL), do not publish a registry of cases, and so without independent sources, information about these claims is not available to the public. Below are two examples of current mining-related cases, the first an oil case before UNCITRAL and the second a gold case before ICSID.
Republic of Ecuador vs. Chevron Corp. (Oil)
The government of Ecuador has been at odds with oil giant Chevron (formerly Texaco) for decades. Since the 1970’s there have been a handful of companies involved in the exploitation of oil deposits in Ecuador. These companies have operated in the same plots of land and they each hold blame, to varying degrees, for the environmental degradation in the Ecuadorian Amazon.
In 1993 a group of approximately 30,000 Amazon residents filed a lawsuit in a New York Federal Court under the “Alien Tort Claims Act” seeking damages of about $27 billion in environmental clean-up. The case was eventually sent back to Ecuador in 2003 at Chevron’s request where it is being re-filed and is still ongoing. Ecuador has filed another claim with the New York Federal Court claiming that although the case is in Ecuadorian courts Chevron has attempted to have it resolved in an international arbitration court (UNCITRAL). Chevron has asked for the dismissal of the New York case (Bloomberg.com).
In September 2009, Chevron submitted a Notice of Arbitration to UNCITRAL against the Ecuadorian government claiming contractual breaches of the U.S.-Ecuador bilateral investment treaty. Specifically, Chevron claims Ecuador did not uphold its obligations related to fair and equitable treatment, arbitrary or discriminatory measures, and most favored nation treatment.
Gold Reserve Inc. vs. The Bolivarian Republic of Venezuela (Gold mining)
In October 2009 Gold Reserve Inc. filed a claim under ICSID, charging that the Venezuelan government had violated articles related to fair and equitable treatment and unlawful expropriation under the Canada-Venezuela bilateral investment treaty.
In January 2009, Venezuelan President Hugo Chavez had announced that the Venezuelan government intended to take over the Las Brisas gold and copper mine managed by Gold Reserve Inc. This was part of the governments’ broader efforts to turn private concessions in extractive industries into joint ventures between the government and private firms, with the intention of assuring greater benefits to the local population.
In response, the mining company issued a “Notice of Arbitration” to the Venezuelans in April 2009 that began a six-month “cooling off” period. More detail of the timeline of events can be found at Investment Treaty News.
As reported by Gold Reserve Inc., with the dispute unresolved, Venezuelan authorities notified the company in October 2009 that they would take over the company’s gold and hardrock concessions. The company filed for arbitration almost simultaneously.
The Venezuelan government maintains that it had revoked a permit for the company to commence its project in March 2007, and the firm lacked the appropriate mining permits. In May 2009 the Ministry of Basic Industry and Mining refused Gold Reserve’s request to extend the Las Brisas project altogether. Gold Reserve Inc. reports that its investment in the project to date is approximately $300 million but Gold Reserve President Doug Belanger has stated the company could claim up to $5 billion in losses.
Rebecca Dreyfus is a research assistant with the Institute for Policy Studies in Washington, DC and a co-author of a forthcoming detailed examination of investor-state cases in the mining sector.