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Trade Agreements vs. Democracy

May 24, 2012

This article appeared in the June 2012 issue of Sojourners magazine

The anonymous death threats phoned to Archbishop Pedro Barreto and others in March told them to stop speaking out about the foreign-owned metals smelting plant in La Oroya, Peru.

Barreto, a Catholic archbishop of the Andean region that includes La Oroya, has been a leading advocate for the health of the 35,000-person town, which the plant has made one of the world’s most contaminated places: 99 percent of children there have dangerous levels of lead in their blood.

However, in an unconscionable move made possible by the 2009 U.S.-Peru trade agreement, it is the polluter who claims to be the victim. The massive New York-based holding company Renco Group Inc., whose subsidiary Doe Run Peru owns the smelter, last year filed an $800 million trade-tribunal lawsuit against the Peruvian government, claiming it violated the company’s rights by enforcing environmental regulations in La Oroya.

It’s one of a growing wave of such arbitrations being filed all over the world by extractive-industry foreign investors. In a similar case, the transnational corporation Pacific Rim has filed a $70 million case against El Salvador, after local communities and activists—four of whom have been murdered—opposed gold mining that could contaminate one of the country’s largest rivers.

The suits circumvent nations’ environmental laws by exploiting so-called “investors’ rights” chapters of trade agreements; such provisions are common in bilateral trade agreements, such as the U.S.-Peru pact, and regional agreements such as NAFTA.

When Renco purchased the La Oroya smelting plant in 1997 from a state-owned company, the U.S. corporation agreed to complete a government-authorized environmental program within 10 years. Peru allowed the company a series of extensions and changes, but finally began to enforce environmental regulations in the face of a broad-based ecumenical campaign that included letter-writing, vigils, marches, and more by Barreto’s Catholic archdiocese, the National Council of Evangelical Churches of Peru, the Peruvian umbrella group Red Uniendo Manos (Joining Hands Network), and international partners.

However, 15 years after its purchase, Doe Run Peru has failed to complete the environmental program—and Renco now claims that Peru’s environmental enforcement violated its rights by leading to Doe Run Peru’s bankruptcy.

In the non-transparent trade tribunals in which such lawsuits are settled, investors can sue nations, but nations can’t sue investors. Foreign investors can sue not only for profits lost but for profits potentially lost, resulting in multi-million dollar awards. In arbitrators’ deliberations, no weight is given to a nation’s constitution or laws, only to the trade agreement’s investment chapter—whose often-vague terms (such as “fair and equitable treatment”) are, at present, often interpreted in favor of corporations. This bias isn’t surprising: Arbitrators for trade tribunals such as the U.N. Commission on International Trade Law, in which the Renco suit was filed, or the International Center for Settlement of Investment Disputes (ICSID), are selected from a roster of international trade lawyers. They are not ordinarily well-versed in human rights, environmental law, or the social impact of legal rulings.

There is no right to appeal. And the investor-state lawsuit strategy is being increasingly employed: In 1996, three arbitrations started moving through the ICSID; in 2011, 38 were begun.

In effect, a foreign investor such as Renco has greater rights in Peru than the very citizens of La Oroya. At press time, the potential cost of an adverse judgment was pressuring the Peruvian legislature to consider allowing the dirty plant to re-start operations without complying with the environmental provisions.

The Peruvian Joining Hands Network, supported by the Presbyterian Church (USA) and other NGOs and faith-based groups, has launched a campaign called “No Greater Rights for Foreign Investors.” Inspired by the words of the prophet Ezekiel, who cried out to the King of Tyre, “in the abundance of your trade you were filled with violence and you sinned” (28:16), the campaign is demanding a reform of trade agreement chapters on investment, including a rejection of investor-state arbitration and the formation of alternative, transparent regional tribunals to handle disputes. Such work is shaped by the faith-based understanding that the moral test of the globalizing economy is whether it serves the human enterprise and creation, not just national advantage and corporate profit.

Conrado Olivera is the executive director of the Joining Hands Network and Jed Koball is a mission co-worker of the Presbyterian Church (USA). Both are based in Lima, Peru.

Reprinted with permission from Sojourners, (800)-714-7474, www.sojo.net.

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