Economy, El Salvador Government, International Relations, Mining

Ecuador’s Article 422 to Set Example for Rest of Region?

As El Salvador prepares for the next round of hearings before an International Commission for Settlement of International Disputes (ICSID) tribunal, a growing chorus of civil society organizations is calling for a renegotiation of CAFTA-DR (the Central American Free Trade Agreement). Their primary complaint is that the settlement dispute provisions in CAFTA-DR give private corporations the right to sue sovereign nations over investment disputes, limiting the country’s ability to protect its workers and environment. Though an ICSID tribunal recently dismissed the Commerce Group’s claim against El Salvador, Pacific Rim Mining Company’s suit claiming an estimated $100 million in lost investments and profits, lives on. You can read more about the Pacific Rim suit here, here and here).

In recent years, Ecuador has had to defend itself in several investment trade disputes similar to the one Pacific Rim has brought against El Salvador. As a result, when Ecuador adopted a new constitution last year, they included a provision (Article 422) that protects the country from international investors. Article 422 could set an important precedent for other nations in the region, including El Salvador.

Currently, Ecuador has been the subject of thirteen investment disputes before ICSID tribunals, the majority of which have involved oil and energy production. Of these thirteen cases, four were decided on the merits, three have been settled, one has been discontinued, and five remain pending. Though Ecuador won three of the four cases decided on their merits, the country has paid approximately $90 million in damages and settlements. These payments motivated Ecuadorans to reconsider their consent to ICSID and other tribunals.

Article 422 simply states that Ecuador will not sign treaties or international instruments in which the State cedes sovereign jurisdiction in instances of arbitration in contract or business disputes of any kind between the State and a natural or legal person. The exceptions are treaties and instruments that create dispute resolution mechanisms between States and persons in Latin America by regional arbitration or by judicial bodies from signatory countries.

Ecuador’s new approach has drawn both praise and criticism. Critics are concerned that parts of Article 422 are vague and will be difficult to implement, raising concerns about how it will affect Ecuador’s relationships with foreign investors. Without an adequate dispute settlement protection, the risk of investment increases, which could scare away much-needed development. Critics are also concerned that by opting out of arbitration in some cases but not others they are creating another level of discrimination in the Ecuadoran legal system, allowing domestic investors more rights than international investors. Such discrimination is troubling for a modern legal system that is supposed to be based on equality.


Supporters of Article 422 praise it as Ecuador’s protecting its sovereignty and national identity, which has been a priority for Ecuadoran President Rafael Correa. Though Ecuador has never been reflexively anti-U.S., the relationship between the two countries has been steeped in economic, political, and military pressure.  Article 422 is seen by many as a move to assert greater independence. It also contributes to a growing sense of Latin American regionalism by deepening the economic and political integration among its neighbors.

Though article 422 limits Ecuador’s exposure to investor-state arbitration, it allows investors to file a complaint in a domestic court. This will limit Ecuador’s exposure and protect their regulatory authority, while ensuring that investors have a way to protect themselves.

Ecuador’s move to protect itself against the onslaught of investor suits is an important development in the debate over investor-state relations. It also contributes to the renewed vision of Latin American regionalism. Whether other nations in Central and South American follow in Ecuador’s footsteps remains to be seen. But it is clear that the debate over investor rights in El Salvador and other countries is not over.


Advocacy, Cabanas, El Salvador Government, Environment, Mining

More Mining Companies Solicit Exploration and Exploitation Permits in El Salvador

FMLN diputada Lourdes Palacios, representative to the Legislative Assembly’s Committee on the Environment and Climate Change recently voiced concern about the country’s stance on mining practices in an October 21 Diario CoLatino piece. Her primary concern is the increase in applications (from 26 to now 73) for metallic mining exploration permits to the Ministry of Environment and Natural Resources (MARN, according to its Spanish acronym).  She said that while the Committee has neither made much progress on the new Mining Act (which would ban mining) nor on reforms to the current Mining Act (which has been in force since 1996), it is still important to continue discussing the issue and seek out information and opinions.  She affirmed that the Committee considers the issue to be urgent, both with regards to reforming the law and, in the FMLN’s stance, definitively banning mining in El Salvador. ARENA diputado Vicente Menjívar said he supported the idea of allowing these metallic mining exploration permits under “a good law.”

Herman Rosa Chávez, head of the Ministry of the Environment and Natural Resources, brought the issue to light on October 12 in front of the Committee, stating that the 73 applications for metallic mining permits were not the only cause of concern.  Additionally, there are another 10 applications for extracting subsoil metals.  “The Minister of Environment himself has confirmed to us that there are more applications for exploration, and not only for extracting gold and silver, but also for bronze, aluminum and cadmium… There are other minerals in the country, as is known, but metallic mining is incompatible due to the territory’s limited space and socio-environmental damages,” Palacios emphasized.

Rosa Chávez stated that MARN is currently conducting a “Strategic Environmental Evaluation of Mining,” and posited that the government should consider enacting a moratorium to effectively ban incoming applications for mining permits until MARN finishes its evaluation.  He estimated that the evaluation would be ready in the first quarter of 2011. The Spanish government is funding the $200 million-dollar study. He also noted that MARN had not conducted any public consultations with the settlements near the zones where exploration permits had been requested, nor would he reveal any specifics about the companies or exploration sites. Rosa Chávez clarified in an October 13 Diario CoLatino article that MARN could not release its official position on the mining issue until the study is concluded, since little is known about the harm that these minerals under consideration in the permits (such as copper, aluminum, and thallium) can cause to the environment and human health.

The recent applications for exploration and exploitation permits were submitted with full knowledge of the country’s stand, or lack thereof on mining. An article posted on, posits that these mining companies hope the government will deny their applications so they may also file claims with the International Centre for Settlement of Investment Disputes (ICSID) and demand millions of dollars in compensation for lost profits, just as Pacific Rim Mining Company and the Commerce Group have done. believes that the mining companies are abusing the Central American Free Trade Agreement and that El Salvador could potentially face as many as 83 multi-million dollar lawsuits from unscrupulous companies. Even if the mining companies are not looking for a lawsuit, they may be soliciting permits in anticipation of a ban on mining, hoping fora grandfather clause that would allow them to mine.

Mining interests may also see the government’s Environmental Evaluation of Mining as a sign that the government will begin granting permits. In January 2010, when Salvadoran officials announced their plan for the Environmental Evaluation, mining activists in Cabañas were concerned that the government was producing a report that would justify mining. In September 2010, when the government contracted with the Tau Group to conduct the survey, Condor Resources PLC, a UK-based exploration company, stated that they were encouraged by the government’s action and hoped they would soon have permits for their projects in San Miguel and on the border of Cabañas and San Vicente. Mark Child, the Chairman of Condor, even stated,

“The EAE will inform the Government how to conduct exploration and mining in a safe, secure and environmentally friendly manner. The hope is that the Government adopts recommendations from the EAE, amends the current mining law accordingly and issues permits. Condor awaits the findings of the EAE with interest.”

Whether the mining companies soliciting permits are laying the groundwork for more claims under CAFTA or believe El Salvador will soon grant permits is impossible to know at this point. No matter the motive, Lourdes Palacios and others on the Committee on the Environment and Climate Change ought to continue pressuring for more information and a real ban on mining.