U.S. Company Threatens Peru with Free Trade Lawsuit

(IPS) – The U.S. mining and metallurgical company Doe Run has once again challenged the Peruvian government. The Renco Group, of which it is a subsidiary, notified the government of its plans to start an international arbitration process, invoking the free trade agreement between this South American country and the United States.

The U.S.-based holding company said the arbitration will be filed in 90 days if no agreement is reached. What is behind this ultimatum?

In ads published Jan. 5 in newspapers in Lima, the Renco Group said it was turning to the mechanisms provided for by the trade promotion agreement because it had received “unfair treatment” at the hands of the Peruvian government and had not been given “protection and security” as an investor, as required by the treaty.

Doe Run began to run the large multi-metal smelter in the central Peruvian highlands city of La Oroya, known as one of the most polluted places on earth, after the plant was privatised and acquired by the Missouri-based firm in 1997.

When it won the concession to operate the plant, Doe Run promised to complete an environmental improvement programme, known by its acronym PAMA, within 10 years. But the Peruvian state also assumed a commitment to clean the soil in and around the town, because the factory, which was built in 1922 by the Cerro de Pasco Corporation, a U.S. firm, was taken over by the state-run Centromin Peru in 1974.

Doe Run now claims that Activos Mineros, the state-run firm that took over Centromin’s responsibilities, has refused to clean up the soil in La Oroya, and “has refused to accept responsibility for the legal action brought by the citizens living in and near the town of La Oroya who claim various injuries resulting from alleged lead exposure and environmental contamination” from the smelter complex.

“But it is Doe Run that has failed to fully implement PAMA and has continued to pollute in La Oroya,” former deputy minister of mines María Chappuis told IPS. “This communiqué is as if they were telling the government: we pollute and you clean up.”

Chappuis resigned from her post in December 2004 to protest an extension of the PAMA deadline that the government granted to Doe Run.

The former official complained that the company wants the government to pay for any damages that a U.S. court could order for the families of more than 100 children with lead poisoning in La Oroya.

In late 2010, a court in St. Louis, Missouri, where Doe Run’s corporate offices are based, ruled that 11 lawsuits filed against the Renco Group and Doe Run by a group of citizens from La Oroya could go ahead in that venue. The plaintiffs are suing over injuries from lead exposure and environmental pollution caused by the smelter.

If the court rules in favour of the plaintiffs, the company will have to pay reparations to the families of the children.

Doe Run committed itself, through PAMA, to reaching a target of 95 percent of children under six in La Oroya with a lead level below 10 micrograms of lead per decilitre of blood (mcg/dl), regarded by the World Health Organisation as the maximum safe limit.

But Peru’s Health Ministry found that 99 percent of children under six in La Oroya had lead poisoning.

Doe Run also promised to build three sulphuric acid plants for its lead, zinc and copper processing operations. But the copper circuit plant, the most crucial, has not been completed.

As of mid-2009, Doe Run had failed to fulfil 20 percent of the PAMA programme. And since then, no progress has been made, because the company was temporarily shut down in June 2009 after declaring bankruptcy, despite soaring metals prices.

It then missed the July 2010 deadline set by the government of Alan García for proving that it had the necessary financing to restart operations and complete an environmental cleanup.

“The 90 day deadline (that Doe Run gave Peruvian authorities) sounds suspicious,” said Chappuis. “What it is trying to do is provide enough time for the emergence of someone who yields to its pressure, as happened before, especially now, during an election year.” General elections are due in April.

The former official was referring to a letter sent in October 2007 by then prime minister Jorge del Castillo (2006-2008) to then U.S. ambassador to Peru Michael McKinley, asking the State Department to intervene in a lawsuit that had recently been brought in Missouri against Doe Run Resources Corporation.

In the letter, Del Castillo asked the U.S. government to contact the Department of Justice and the St. Louis court, in order to avoid “setting a disturbing precedent for investors in both countries, which would undermine legal security.”

In response to criticism, the former prime minister said he had sent the message “to avoid controversy in the face of the approval of the free trade agreement with the United States,” which went into effect in early 2009.

If the international arbitration proceeding goes ahead, the Renco Group would become the first company to turn to the mechanisms for that purpose created by the free trade agreement.

“The Peruvian government must not make another mistake, and has to act cautiously,” said economist José de Echave of CooperAcción, a Peruvian NGO working for development.

In response to a query by IPS, the Ministry of Energy and Mines said “The state will only pronounce itself on this matter through the legal routes.”

Activos Mineros, for its part, published an insert in a local magazine, stating that it had planned to invest 35 million dollars in a cleanup plan between 2007 and 2015, and that so far 4.8 million dollars have been spent to carry out a study on soil remediation and urban cleanup actions.

IPS was also informed that Activos Mineros has already calculated how much Doe Run would have to pay Peru for the remediation, because it was reported that the contract establishes that if the company that took over the smelter did not have better environmental performance than Centromin, it would have to assume part of the costs.

“If in 2004 the company had not received an extension of the deadline for completing PAMA, the firm would not have invoked the free trade agreement, which did not enter into effect until five years later,” de Echave said.

He also questioned claims that “a court like ICSID (International Centre for Settlement of Investment Disputes) has environmental sensibility, when its rulings tend to go in favour of investors.”

De Echave pointed out that since the start of the negotiations of the free trade agreement, a number of organisations warned that the chapter on investment made too many concessions. “And today we’re seeing the consequences,” he said.