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No Greater Rights for Foreign Investors

A campaign to restore the regulatory authority of the State in order to protect the environment, the welfare of the people and democracy itself.

A pattern is emerging among transnational companies where corporations are suing governments in international tribunals to resolve disputes regarding natural resource rights.

No Greater Rights for Foreign Investors

 In Latin America, these suits are escalating, particularly in the oil, mining and gas sectors, and seem to appear when states attempt, according to reports, to enforce environmental regulations or to restrict mining operations that may impact public health and safety.

In April of 2011, The Renco Group filed an $800 million lawsuit against the State of Peru in an international tribunal called the United Nations Commission for International Trade Law (UNCITRAL). The Renco Group claims that the State of Peru, in enforcing environmental regulations that were allegedly financially detrimental to its investment in Peru, violated the transnational corporation’s foreign “investor rights” as stipulated in the Chapter on Investments within the U.S. – Peru Free Trade Agreement (FTA).

This is the first arbitration filed within the framework of the US-Peru FTA and it is tied to a dispute about one of the Renco Group’s holdings:  One of the largest multi-metal smelters in the hemisphere located La Oroya, an Andean mountain town.

However, this arbitration is just one example in a growing wave of arbitrations being filed primarily against Latin American states by foreign investors who are exploiting the Chapters on Investments found within FTA’s and Bilateral Investment Treaties (BIT).  It is important to observe the emerging pattern. Rights provided to transnational corporations, including the right to file arbitration in an international tribunal, are allowing foreign investors to circumvent local judicial processes, subvert the regulatory authority of the State, and ultimately threaten democracy itself.

This is why Peruvian partners of the Presbyterian Church (USA), Red Uniendo Manos (RUM), is part of a coalition of groups in Peru calling for No Greater Rights for Foreign Investors, a campaign which is working for reform on investment chapters in trade agreements, a rejection of investor-state arbitration and to promote alternative and transparent international tribunals for disputes between states.

RUM has been involved with families in the town of La Oroya for more than 10 years. This community suffers from ongoing environmental degradation because of the failure to complete the installation of appropriate pollution controls in a town where more than 90 percent of the children are lead poisoned.

The Renco Group is a holding company based in New York city and owned by New York billionaire, Ira Rennert. It’s primary investment in Peru is a metallurgical complex in the Andean town of La Oroya, operated by Doe Run Peru.  When the the Renco Group purchased the metallurgical complex, it agreed (by way of its purchasing contract) to complete a pre-existing Environmental Adequacy and Management Program (PAMA) within 10 years of purchase of the plant. Today, nearly 15 years later, Doe Run Peru has not only not completed the PAMA, the Renco Group now claims that the State’s enforcement of the PAMA negatively affected the financial performance of its investment, Doe Run Peru, ultimately leading it into a bankruptcy and thus violating Renco Group’s investor rights.   

These “investor rights” attempt to provide foreign investors with what is referred to as a “stable regulatory authority” in the countries where they operate.  Originally intended to protect a corporation from a hostile takeover of its investment by an unforeseen government move towards the nationalization of industries, these investor rights are now being interpreted more broadly.

 In essence, foreign investors have means of appeal that are unavailable to citizens of a state, if a foreign company can show that the action taken by the State led to a loss in profits of the investment.  In other words, a New York billionaire like Ira Rennert has greater rights in Peru than the citizens of La Oroya.

Furthermore, because the US-Peru FTA allows for investor-state arbitration (whereas, previously any dispute between a foreign investor and a state would be resolved in a state-state arbitration process) the Renco Group can circumvent local judicial processes by going directly to international tribunals like UNCITRAL ,or the International Center for Settlement of Investment Disputes (ICSID), which is related to the World Bank, rather than use domestic courts, where national companies must resolve disputes.

Governments do not have a reciprocal process to an international tribunal.

In addition, corporations can sue not only for profits lost but for profits potentially lost, thus resulting in multi-million dollar rewards.

While the Renco Group suit sits in a queue, legislation is being developed in Peru to extend the PAMA, perhaps, indefinitely, if the company can demonstrate that it does not have the financial resources to implement it. That effort is opposed by many religious leaders, including the National Council of Evangelical Churches of Peru (CONEP) and the Archbishop of Huancayo, Pedro Barreto, whose diocese includes La Oroya.

The archbishop is one of two leading spokespersons for environmental reform and sustainable development whose lives were threatened by an anonymous caller recently.

A similar case is under way in El Salvador where a transnational mining company, Pacific Rim, is waiting to hear whether ICSID will assume jurisdiction over its $70 million arbitration filed against the State of El Salvador. Local communities organized to oppose a gold mining operation due to well-founded fear of contamination of one of the country’s largest rivers.

Four environmentalists who opposed the mining operation have been murdered and other threats have been issued recently.

The denomination’s policy on trade -- approved by the General Assembly in 2003 -- opposes multinational actions and trade agreements that elevate the rights of corporations over governments and indigenous peoples “to pass and enforce laws that preserve the public good and protect their citizens, economies and environment.”

The church’s Just Globalization policy, approved in 2006, says that the moral test of the globalizing economy is whether it serves the human enterprise and the creation, not just national advantage, individual benefit and corporate profit

--Jed Koball, Mission Co-Worker, JH Facilitator, Peru

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