Pacific Rim Mining Corp. just won the first stage in its attack under the Central America Free Trade Agreement (CAFTA) demanding hundreds of millions of dollars in compensation from the government of El Salvador over environmental and health policies. The corporation is using the CAFTA provisions that grant foreign investors expansive new rights to sue governments in foreign tribunals over regulations or government actions that conflict with the pacts' special rights for foreign investors and that could undermine their future expected profits.
Wait, weren't we told that those outrageous NAFTA-style foreign investor special privileges -- that promote offshoring and expose our public interest laws to attack in foreign tribunals -- had been fixed in CAFTA? So, we should not worry that the same provisions appear word-for-word in Bush Free Trade Agreements (FTAs) with Korea, Colombia and Panama? OK, we didn't buy it then, nor did congressional Democrats. Only 15 House Dems supported Bush's CAFTA, which Obama opposed as a Senator.
So, what's up with the Obama folks now? Last month, Obama said he wanted to start moving the three leftover Bush FTAs toward Congress and instructed trade officials to fix the Korea FTA so it could move early next year. But so far, "fix" only means improving access for U.S. auto and beef exports. The administration will decide its "ask" of Korea this month.
And now like a warning flare comes this ruling in a CAFTA investor attack on a country's environmental and health policies.
When it comes to the lunatic NAFTA-CAFTA investor rights, the U.S.-Korea FTA poses a special threat -- because both countries are major capital exporters. That means, in contrast to U.S. FTAs with developing countries, there are hundreds of Korean firms operating here that could use the FTA's investor rights to skirt our court system and laws and demand taxpayer compensation in foreign tribunals for U.S. laws that they do not like. And the hundreds of U.S. firms in Korea could do the same there. (Click on the link above to see the locations of these firms.) Moreover, this private enforcement system covers the Korea FTA's financial services provisions, meaning the recent U.S. and Korea reregulation initiatives would be newly exposed to attack by numerous banks and insurance and securities firms.
The fact that an attack like Pacific Rim's would even be possible highlights what is wrong with our current trade agreement model. The very existence of these extraordinary foreign investor rights -- the notion that foreign corporations could be allowed to sue the U.S. government in private international tribunals, bypassing domestic courts -- undermines federal and state efforts to protect public health, safety, and precious natural resources.
Consider the logic of Pacific Rim's case. The firm sought to establish a massive gold mine with cyanide ore processing in the basin of El Salvador's largest river, Rio Lempa. They got an initial exploration permit. El Salvador, the size of Massachusetts with a population density of 800 people per square mile, already faces severe environmental degradation and surface water contamination. Opposition to the project grew. The conservative Arena government agreed to do a national review of mining policy, but to date the laws remain the same. The firm's response was to not file the feasibility study, which is necessary to obtain an operating permit, and largely shut down operations. Now, the firm claims El Salvador should pay hundreds of millions of dollars because it failed to provide a stable investment environment.
Good thing BP is not a Canadian firm, or we could be facing the same sort of case over post-Gulf disaster changes to offshore drilling policy.
Even when a country successfully defends against such a challenge, significant amounts of taxpayer funds must be expended in legal defense. There is simply no basis for elevating the interests of specific foreign corporations to equal footing with governments' public health, environmental and safety laws, which is what private enforcement of intergovernmental agreements does.
So, it's no surprise that 110 House Democrats in a letter to President Obama last month -- and numerous labor, environmental and other organizations -- have demanded that the extraordinary investor rights and their private enforcement be removed from the Korea FTA.
Now, Obama must decide: Will he fix this problem, as he committed to do during the campaign? Or will he take ownership of Bush's NAFTA expansion agreements with Korea -- and Colombia and Panama -- with foreseeable and dire policy and political consequences?