Alexandra Endres: Zeit online / Translation: Marina Bonetti

El Salvador sits on a rich gold deposit – and wants to leave it in the ground, in order to protect its drinking water. The investor sues: a test of strength for the young democracy.

“End poverty, Not Democracy!” Demonstrators protest in front of the World Bank building in Washington, against the arbitration tribunal process of Pacific Rim vs. El Salvador. 

 Any day now a verdict could be reached in Washington that will decide over the future of a whole country. The plaintiff: Pacific Rim, a Canadian mining company, which does not exist anymore. The court: an arbitration tribunal of the World Bank. The defendant: El Salvador, a little Central American country maltreated by violence. It is about a rich gold deposit – and on the question, whether a poor country like El Salvador should venture to ban its exploitation, for the sake of the environment. The majority of Salvadorans would do it.


The case goes back a long time. Eight years ago the then-head of state of El Salvador Antonio Saca refused to grant mining rights to the mining company Pacific Rim for a vein of gold in the Department of Cabañas. The president and its conservative party (ARENA) were in principle open to investors – but there was only one exception: mining projects. Public pressure and the concern that the mine could contaminate the drinkable water of El Salvador were too pressing.

As of today, the situation has remained the same. Even the two left-wing party (FMLN) presidents who followed Saca did not revoke his decision. A dozen of applications are on hold: the current government of president Salvador Sánchez Cerén would like to stop definitively the allocation of concessions. The population stands behind him; for example in the municipality of Arcatao in the Department of Chalatenango, where in the past November almost 100% of the inhabitants voted against mining. Though the process in Washington has blocked a final decision since years.

For Pacific Rim, it is about a lot of money. The Canadian firm explored the gold mine in Cabañas for six years, investing millions of dollars in test drilling. The mine was the most important asset of the company. Pacific Rim guessed about 1,4 million troy ounces of gold, with a value of $ 1.000 per ounce: too much money to be given up without fighting.  

In 2009 the firm sued El Salvador before an arbitration tribunal of the World Bank for more than 301 million dollars of compensatory damages. For the country this is a big sum, it amounts to more than one percent of the GDP; in addition, the legal cost of the process, about twelve million dollars, have to be added. This is money that El Salvador could have spent in much more meaningful ways, Canadian anti-mining activist Jen Moore says. Pacific Rim argues that the government has violated both the Central American Free Trade Agreement (CAFTA) and national law. In the meantime, the firm has become a subsidiary of the Australian company OceanaGold;the lawsuit proceeds nonetheless.

Protection of investors, TTIP and CETA

From Germany, this all seems far away. But this case shows what consequences there can be when free trade agreements or national laws put investors under special protection – as it is planned in the transatlantic TTIP agreement or in the European-Canadian CETA agreement. “Both TTIP and CETA strongly encourage such actions, in order to defend their special rights to bring suit by foreign investors”, say Pia Eberhardt from the Corporate Europe Observatory, an organization critical of the TTIP. Such rights would give the foreign company the possibility to “ask for compensatory damages, only because a country decides to follow the democratic will of its people”. For example, withdrawing from a mining project, as in El Salvador.

In other countries the lawsuits in arbitration tribunals concern individual projects or – as in the action on the German de-nuclearization – the direction of a particular policy like energy policy. But the instance of El Salvador is different. It concerns the development model of a whole country.

Pacific Rim and its successor OceanaGold tried to “force a development way on the country, based on the exploitation of its natural resources, from which only transnational companies, their shareholders, and buyers of the cheap raw material in the industrialized nations profit”, Marcos Orellana says. A lawyer who works for the Centre for International Environmental Law (CIEL) in Washington and is supporting El Salvador in the case in the arbitration tribunal. The majority of the population in El Salvador, “faced with the risk concerning water sources that are essential”, is against a development that is based on mining, Orellana says. For example, in the Department of Cabañasthe inhabitants have started to generate a resistance, as they noticed that sources were drying up due to test drilling by Pacific Rim.

Development, but for whom?

However, it is quite remarkable that El Salvador has abandoned mining. In the rest of Latin America – as in many other developing and emerging countries – the exploitation of natural resources is the preferred way to reach more prosperity and development. Industrialized nations need iron, copper, wood, and gold; and developing countries provide them – even though international mining companies often hardly pay any taxes and the damages to people and the environment are extensive.

Pacific Rim promised people in the Department of Cabañas job positions and prosperity. “The project can be an economic engine for El Salvador”, an OceanaGold speaker says on request. “We believe that a modern mining industry that works in accordance with safe, sustainable and internationally recognized Best-Practice-Standards, offers a sustainable and a decades-long business opportunity for El Salvador”.

Unfortunately he could not comment on the trial happening in the arbitration court. But his company wishes to work further with El Salvador, in order to achieve economic and social improvements for the country through mining. 

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