Canadian Company Threatens El Salvador with Free Trade Lawsuit Over Mining Project

Women Against Mining

A Canadian mining company intends to sue El Salvador’s government for several hundred million dollars if it is not granted permission to open a widely unpopular gold and silver mine that scientists warn would have devastating effects on local water supplies.

Women Against Mining, Photo Courtesy of USESSC

A Canadian mining company intends to sue El Salvador’s government for several hundred million dollars if it is not granted permission to open a widely unpopular gold and silver mine that scientists warn would have devastating effects on local water supplies.

Pacific Rim Mining Corp., using its Nevada-based subsidiary Pac Rim Cayman LLC, filed a Notice of Intent on Dec. 9 through provisions in the Central American Free Trade Agreement (CAFTA) that allow transnational corporations to sue governments over laws and decisions that often put public interests ahead of corporate profits.

"We reject Pacific Rim’s claims. Giving over [exploitation] permission would be a death sentence from the country and the arbitration can’t be accepted because it is the mining company that should be sued," the National Table Against Metallic Mining, and umbrella group of social movements and NGO’s, responded in a statement.

The company and government have 90 days to settle the dispute before the case goes before an arbitration tribunal, while the 90-day period ends just 5 days before the country’s presidential election. The company is looking for permission to begin mining for gold and silver at its El Dorado mine in the department of Cabañas, about 40 miles outside of San Salvador. The lawsuit threat also comes as the government is debating new mining laws.

"They’re either using the threat of a lawuit as leverage or it could be a strategy to help ARENA win the election," said Burke Stansbury, of the Committee in Solidarity with the People of El Salvador (CISPES), a member of the Stop CAFTA Coalition. The right-wing, ruling Arena party is supportive of new mining laws that loosen restrictions for the industry, but has been delaying any actions because of upcoming local and national elections.

Timothy McCrum, the company’s lawyer in the dispute, in a conference call for investors co-hosted with Pacific Rim President and CEO Tom Shrake, noted a case filed through the North American Free Trade Agreement (which served as a model for CAFTA) he believes serves as a precedent that should work in the company’s favor. The dispute, between California-based Metalclad Co. and the Mexican government, ended with the Mexican government forced to pay the company $15.6 million in damages because it refused to grant Metalclad permission to build a toxic waste site in an area designated as an ecological preserve.

Andrew Gussert, executive director of Citizens Trade Campaign (CTC), said his coalition opposes these provisions that were originally introduced in the North American Free Trade Agreement’s Chapter 11 investor rules.

"They’re ways to circumnavigate laws that cost these corporations profits. And these laws are mainly public interest laws dealing with environmental, health and labor standards," Said Gussert. "That’s why we have to roll back these investors rights provisions, because we don’t want corporations to have more rights than people.

But the mining opposition, which includes social movements, the Catholic Church, NGO’s, local lawmakers and environmentalists, may have an unlikely ally–President-elect Barack Obama.

Obama, in a February letter to the Wisconsin Fair Trade Coalition (an affiliate of CTC), clearly stated his opposition to these "investor rights" provisions in free trade agreements.

"With regards to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that this right is strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest," said Obama, who voted against CAFTA while in the Senate.

Obama added that "we should add binding environmental standards so that companies from one country cannot gain an economic advantage by destroying the environment. And we should amend NAFTA to make clear that fair laws and regulations written to protect citizens in any of the three countries cannot be overridden simply at the request of foreign investors."

Destroying the Environment

In 2005, hydrogeologist Robert Moran conducted a technical review of Pacific Rim’s Environmental Impact Assessment (EIA) for the El Dorado Mine Project, concluding the company’s study was incomplete and lacked necessary data and testing. 

"The El Dorado EIA, unfortunately, presents baseline data that are incomplete and which do not allow a reader to adequately evaluate the pre-mining water quantity conditions. To a lesser extent the baseline water quality data are also inadequate, especially with respect to ground water quality" wrote Moran. "The contents of the El Dorado EIA and the related public review process indicate clearly that neither the general public nor the Salvadoran regulators have been adequately informed regarding the possible environmental or socioeconomic impacts to the local populations."

According to a  study sponsored by the Catholic organization Caritas-El Salvador and the non-governmental Salvadoran Ecological Unit (UNES), local water supplies will be contaminated by mercury, cyanide, arsenic, zinc and aluminum, and can be expected to cause health problems for local populations.

"It is estimated that Pacific Rim will use 7,300 tons of cyanide in the El Dorado site in Cabañas," said a staff member of U.S.-El Salvador Sister Cities, a solidarity network that has been active in supporting anti-mining advocacy. "The left over cyanide would bring illness and contamination to the people living near and down river from the mining sites.  Also open pit process uses 900,000 liters of water day, which is what a family consumes in 20 years." 

The Center for Research on Investment and Trade has also concluded in a study that intensive water use and contamination by the mining industry in El Salvador would devastate the country’s agricultural sector and in turn threaten food security as well as the livelihoods of campesino farmers.

But Pacific Mining CEO Tom Shrake dismisses concerns of long-term environmental damage as "preposterous." On his conference call with investors he also accused NGO’s of employing "masked armed gunmen" to "chop down trees planted in our reforestation program." His lawyer McCrum also took shots at the Catholic Church’s opposition to the company’s mine, as well as its criticism of free trade agreements like CAFTA. He said that the church "has allowed itself to be influenced by NGO’s," has segments that are "almost radically left-leaning," and that members of the church opposed to mining are not "acting consistent with Catholic doctrine."

Carlos Peraza Alarcón, a member of Comunidades Unidas, calls mining projects like Pacific Rim’s El Dorado mine a "project of death."

"These projects, if played out as planned, will destroy most of our resources just to satisfy the interest of a small group of people," said Alarcón.

Meanwhile, this conflict presents a President Obama with an opportunity to show Latin America that he has the "audacity" to stand up to corporate power, and in the process begin to repair relations with the people of the region while forging a path to the creation of fair trade agreements. Salvadorans, Americans and the rest of the hemisphere will have to wait until after Jan. 20 to see if hope actually translates into change on this issue.

Cyril Mychalejko is an editor at

For more information visit:

U.S.-El Salvador Sister Cities


Citizens Trade Campaign

Mining Watch Canada