Pacific Rim v. El Salvador and the Perils of Free Trade in the Americas

In 2005, then-Senator Barack Obama published an opinion piece in the Chicago Tribuneentitled “Why I oppose CAFTA.” In his article, released on the same date as the Senate vote on the Dominican Republic-Central American Free Trade Agreement (“DR-CAFTA”), Obama explained that he would not vote for the bill and voiced his opinion that DR-CAFTA “…does little to address enforcement of basic environmental standards in the Central American countries and the Dominican Republic.”1 Despite well-founded fears about the consequences of DR-CAFTA among its critics, President George W. Bush and his administration lobbied heavily for the passage of the bill, which was signed into law on August 2, 2005. El Salvador became the first of the Central American nations to implement DR-CAFTA after the treaty took effect in the country on March 1, 2006.

Like the North American Free Trade Agreement (“NAFTA”), the treaty that DR-CAFTA is based upon, DR-CAFTA’s Chapter 10 includes extensive investor rights provisions. These clauses, ostensibly designed to encourage foreign investment, in fact allow multinational corporations to avoid negotiations with individual governments and instead to settle investor disputes with an international tribunal. The first of such cases adjudicated under DR-CAFTA began when Pacific Rim Mining Corporation (“Pacific Rim”*), a Vancouver-based gold exploration company, filed a petition calling for arbitration proceedings against the government of El Salvador for allegedly failing to grant exploitation permits in accordance with the mining laws of El Salvador. The corporation hopes to receive a compensatory payment totaling at least US $77 million, the amount of money it claims to have lost while waiting for its mining permit to be issued. The case will have alarming implications in the event that the international tribunal rules in favor of Pacific Rim against the government of El Salvador: in addition to the staggering cost that would be imposed on the country, the case could set a precedent for other private companies looking to settle cases in international venues that they presume would be more sympathetic to their cause.

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This analysis was prepared by COHA Research Associate Krista Scheffey