Michael Busch

Pleasant surprises are tough to come by these days. But on Friday, a World Bank tribunal delivered one by rejecting a multinational mining firm’s lawsuit against El Salvador that many observers thought would go the other way. The court dismissed OceanaGold’s claims that the Salvadoran government had wrongfully kicked the company out of the country after it failed to conduct proper environmental impact assessments that aim to guarantee ecological safety and public health. OceanaGold, originally known as Pacific Rim, sued El Salvador for some $100 million of lost anticipated profits from the move—a figure that eventually bloomed to $300 million dollars in subsequent motions.
The legal mechanics behind the suit were sketchy and precedent-setting. As I wrote in 2009:

Pacific Rim filed a notice of intent in December 2008 to bring El Salvador in front of an international arbitration board to resolve the dispute. Specifically, the corporation claimed that El Salvador violated the spirit of nondiscrimination enshrined in Chapter 10 of the CAFTA agreement by allowing domestic companies to pollute while denying the same privilege to Pacific Rim.

CAFTA, which was signed by El Salvador in 2006, allows multinational corporations to sue Central American governments for cash compensation when their potential for profit has been undermined. But because Canada is not a signatory to CAFTA, Pacific Rim is not technically entitled to Chapter 10 protections as it claims. Nevertheless, the corporation routed the lawsuit through a backdoor: its American-based subsidiary Pacific Rim Cayman LLC.

The suit threatened the very viability of the Salvadoran state. TeleSur correctly notes that the damages sought by OceanaGold “equivalent to three years of El Salvador’s public spending on health, education, and public security combined.” The ruling comes at a particularly precarious moment for the Salvadoran economy. El Salvador, which has suffered through rising murder rates, stagnant growth and polarizing politics over the past several years, currently struggles under the weight of a major liquidity crunch as lawmakers deadlock over how to remedy a $300 million deficit and impending reduced credit rating. President Salvador Sánchez Cerén has labeled it an “emergency.” 

A verdict against the company would have sent El Salvador into a financial tailspin. In the event, the tribunal ordered OceanaGold to cover El Salvador’s legal fees, totaling $8 million. Speaking with the Guardian, though, Bernardo Belloso, president of the Association for the Development of El Salvador, rightly argues that despite the court victory, severe damage has already been done. “This is a law suit that should never have been allowed. The millions of dollars that El Salvador has spent in legal costs could have been used to strengthen badly needed social programs in our country.” This is to say nothing of the human resources that were also directed at defending El Salvador’s sovereignty from multinational encroachment that could have been better utilized for problem solving at home. 

The verdict has ramifications far beyond El Salvador’s borders. Opponents of the Trans-Pacific Partnership agreement signed earlier this year have long warned that lawsuits like OceanaGold’s—where private businesses sue sovereign governments, and decisions are rendered by closed-door tribunals that deliberate in secret—could become routine under the TPP. The happy resolution of this particular case sets clear precedent for future courts faced with similar suits, and, for the time being at least, cuts against assumptions that the World Bank and its associated organs are simply handmaidens to private interest. Nevertheless, whatever anxiety might be salved on this count quickly amounts to cold comfort. The ruling offers a moment’s relief to El Salvador, but does nothing to alter the legal landscape determining economic relations—a landscape that currently tips the balance of power in favor of multinationals to the detriment of poor countries. We’ll be seeing a lot more of these kinds of cases in the years to come.

Michael Busch is Senior Editor of Warscapes. Follow him on Twitter at @michaelkbusch.