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EL SALVADOR’S WIN AGAINST THE US MINING COMPANY PACIFIC RIM: A VERY NUANCED VICTORY

by Karen Hudlet : Equal Times

In October this year, the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) decided in favour of El Salvador in a case brought by the US mining company Pacific Rim Cayman (now part of the Australian-Canadian company Oceana Gold) regarding a dispute over the granting of a mining licence for the El Dorado mine, a gold-mining project in Cabañas, in the north east of this Central American country.

From the outset the mining project drew strong opposition from the local population, as well as from various representatives of civil society (both national and international) because of the potential negative impact the mining project could have, both environmentally and socially.

Unlike other Central American countries, El Salvador still does not have any large scale mining.

The ICSID’S ruling on the case attracted the attention of several stakeholders, including governments, organisations and companies, either because it was in favour of a small state in face of a foreign mining company (a sort of David and Goliath story), or because of the antagonism arbitration proceedings can generate from a human rights point of view, or because of the harmful environmental impact of mining.

And, although ICSID decided that the case lacked merit, which meant that El Salvador did not have to pay the US$300 million dollars demanded by the company to compensate for the loss of potential profits (it is the equivalent of 1 per cent of the country’s GDP), it is important to analyse the outcome with care.

Pyrrhic victory

The stance taken by the International Allies Against Mining in El Salvador is a reminder that this is a pyrrhic victory for El Salvador, as there have already been negative consequences, and they will continue to have an impact regardless of the ruling.

First we should recall that during the seven years of the trial, the country invested more than US$12 million to defend itself, using financial resources that could have been used to solve social problems. But even more importantly we must recall that since the mining industry arrived, it has provoked a dispute in Cabañas that has led to the documented deaths of five people in the community who opposed the project, as well as numerous threats and attacks.

Finally the arbitration proceedings showed other states that when a government decides in favour of the interests or positions of its population, this can come at a heavy economic cost for the country. These consequences and the possibility of finding themselves caught up in arbitration proceedings against a company could put them off taking measures against a company’s interests.


Despite the negative impacts described above, over the last seven years there have also been some positive lessons.


 The first is how important social organisation at all levels (community, national and international) can be in making an impact on and securing the protection of the environment and natural resources. Over the course of three governments, El Salvador has kept a moratorium on metal mining which, although it has yet to be enshrined in law, has proved useful in safeguarding the interests of ordinary citizens.

Secondly it shows how different forms of protest and enforcement mechanisms (combined with an access clause) have enabled the organisations and people who could be affected by the company’s activities to get more involved.

Finally, the positive ruling gave hope that, in cases where a company has not complied with national regulations, it is possible to get a ruling in favour of the state. 


However, another fundamental issue to bear in mind when analysing the ruling and the outcome, is the breach of the regulations and the protection of the company’s and the citizens’ interests. That is to say, the proceedings showed the enormous difference between the resources available to companies such as Pacific Rim and Oceana Gold to protect their interests (and investments) in contrast to the scarce resources of the citizens, the victims and potential victims when they want to protect their human rights in the face of a company’s activities 


The company was able to bring an arbitration case despite the fact that it had not complied with the state’s regulations. In contrast, the state found itself being threatened for wanting to protect its water resources by means of this moratorium.

It is precisely because of this disparity that the recent discussion on a binding international treaty regulating the responsibility of states (including the state of origin) and enterprises with regards to human rights is so relevant.

The efforts made at the recent second session of the Inter-governmental Group on the elaboration of this instrument have shown there is a long term alternative. Similarly this case is interesting because the third pillar of the UN Guiding Principles on Business and Human Rights, dealing with Access to Remedy, should be used to generate mechanisms to enable access to justice.


This case shows us the urgency of seeking mechanisms to protect human rights and increase this protection - that is, to generate legal and extra-legal mechanisms that will level the playing field.


There is no doubt that the case in question illustrates several factors that need to be taken into consideration with regard to human rights, the mining industry and arbitration.

Furthermore, the lessons learnt could be useful for other states and organisations involved in similar situations; particularly bearing in mind that since 2013 the Washington-based think tank, the Institute for Policy Studies, has found an increase in the number of arbitration proceedings against Latin American countries related to the mining and energy sectors.