The Case Against International Arbitration Tribunals

Anti-mining demonstrators in Lima, June 2011. Pilar Olivares / Courtesy Reuters

When a mining company first began exploring for gold in Cabañas, a northern province of El Salvador, in 2002, locals were enticed by the promise of jobs and an infusion of cash. El Salvador, still struggling with the twin legacies of civil war and neocolonialism, needed economic development to build up civil society institutions, bolster democracy, and lift its people out of poverty. 

It did not take long, however, for local support for the company -- Canada’s Pacific Rim -- to dissipate. Pacific Rim had begun exploratory mining near the Lempa River, El Salvador’s largest water source, and those living near the river soon reported depleted and polluted water, with associated health and environmental problems. By the state’s estimate, due to mining, agricultural runoff, and poor sewage treatment, 90 percent of the country’s surface water was already contaminated. Opposition to mining quickly garnered widespread support, including from the Catholic Church and politicians across the political spectrum. By 2007, more than 62 percent of Salvadorans opposed metal mining. And in 2008, Elías Antonio Saca, president of El Salvador at the time, announced a de facto mining ban that has continued under current President Salvador Sánchez Cerén. 

Pacific Rim, for its part, said in 2009 that the El Salvador government was obligated to issue the company a mining permit anyway, as the company had already spent time and money exploring the region. The government countered that Pacific Rim had not complied with the requirements for a permit, including acquiring land titles for the area encompassing its proposed mines, obtaining the appropriate environmental authorizations, and submitting environmental impact assessments and a project feasibility study. Instead of litigating the dispute in El Salvador’s domestic courts, in 2009, Pacific Rim decided to bring suit against the government in a little-known arbitration tribunal run by the International Center for Settlement of Investment Disputes, part of the World Bank Group. As part of the ongoing suit, Pacific Rim is seeking $314 million in damages, a figure that

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