Stopping Multinationals from Running Roughshod over Environmental Regulations

La Oroya, Peru

• 1 of the 10 most conatminated cities in the world• Population of 33,000 people of which 11,000 are children• 99% of the children have blood-lead levels more than 10mg/dL• 900 square miles of soil are contaminted up to 4 inches

The source of contamination is a metallurgical smelter owned by a U.S. corporation called Renco Group, Inc., based in New York City

• After trying to enforce environmental regulations in La Oroya, the State of Peru was sued by Renco Group, Inc. $800 million in an international court.

No Greater Rights for Foreign Investor

Stopping Multinationals from Running Roughshod of Environmental Regulations

No Greater Rights for Foreign Investor

Stopping Multinationals from Running Roughshod of Environmental Regulations

An Advocacy Campaign of the Presbyterian Hunger Program

Jed KoballPresbyterian Hunger Program

Lima, Peru

An Advocacy Campaign of the Presbyterian Hunger Program

Jed KoballPresbyterian Hunger Program

Lima, Peru

Agenda

1. Story of Environmental Contamination in La Oroya

2. What does Free Trade have to do with it?

3. The growing trend of Multinationals using Free Trade Agreements to undermine environmental regulations

4. Options to Change the System

North and South America Peru

Peru

La Oroya

• Renco Group, Inc purchased the metallurgical smelter in la Oroya in 1997. In the purchase contract with the State of Peru, it committed to installing new technologies within ten years. Within 1 year, emissions levels skyrocketed.

• Fully operating, smelter emits over 2 million pounds of lead, cadmium, arsenic and sulfer dioxide per day.

• The State of Peru granted the company multiple extensions to complete its environmental and contractual responsibilities. To this day, it has not installed the most important technologies.

Our Response: 1998-2008Our Response: 1998-2008

• Study and Access of Information• Get the Press Involved• Pressure Peruvian Government to enforce

environmental standards• Pressure Renco Group, Inc. to fulfill

environmental commitments

• Study and Access of Information• Get the Press Involved• Pressure Peruvian Government to enforce

environmental standards• Pressure Renco Group, Inc. to fulfill

environmental commitments

In 2009, two events change the scenario and alter our responseIn 2009, two events change the scenario and alter our response

1. Renco Group, Inc declares that its investment in La Oroya (the

metallurgical smelter) is going bankrupt

1. Renco Group, Inc declares that its investment in La Oroya (the

metallurgical smelter) is going bankrupt

•Following 2008 world financial crisis, metals prices temporarily fall

•The metallurgical smelter temporarily loses its credit line

•Renco Group asks for a bailout from the State of Peru in order to keep the smelter operating

•It claims that the Bankruptcy is result of unfair and costly environmental standards

•Bailout was denied, and in June of 2009 the smelter was shut down. It would not operate again for three years.

2. U.S. - Peru Free Trade Agreement is enacted (Feb. 2009)

2. U.S. - Peru Free Trade Agreement is enacted (Feb. 2009)

• In 2011 Renco Group files a lawsuit against State of Peru for $800 million in an international court referred to as ICSID

• It claims that Peru violated Renco Group´s “Investors Rights” as stipuated in the Free Trade Agreement

• In 2011 Renco Group files a lawsuit against State of Peru for $800 million in an international court referred to as ICSID

• It claims that Peru violated Renco Group´s “Investors Rights” as stipuated in the Free Trade Agreement

Foreign Investor Rights

Non-discriminatory treatment:- Same as national investors- Same as other foreign investors

Compensation for direct/indirect expropriation:- Money to investor for physical confiscation- Money to investor for decrease in value due to a policy

Fair and equitable treatment (FET): - Vague and expansive- arbitrators will define- Recent interpretations: Not upset investor expectations, e.g. by changing laws

In short…In short…

• Through the use of ¨Investors Rights¨ found in Free Trade Agreements, the polluter is claiming to be the victim, and…

• it is getting away with it, and…

• it is not the only one.

• Through the use of ¨Investors Rights¨ found in Free Trade Agreements, the polluter is claiming to be the victim, and…

• it is getting away with it, and…

• it is not the only one.

Iconic Cases

Metalclad v. MexicoChevron v. Ecuador

Pacific Rim v. El SalvadorCANACAR v. U.S.

Phillip Morris v. UruguayRenco Group v. Peru

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Growing Wave of Investor-State Lawsuits

How is this happening?How is this happening?

Growth of Trade and Investment Agreements on a Global Scale

Source: UNCTAD

The “Spaghetti Bowl”

What do these Trade Agreements Consist of?

Preamble1. Initial Provisions and General Definitions2. National Treatment and Market Access for GoodsUS Tariff ScheduleAnnex to US Tariff SchedulePeru Tariff ScheduleAppendix to Peru Tariff ScheduleITA Side Letter3. Textiles and Apparel4. Rules of Origin ProceduresAnnex - Product Specific Rules5. Customs Administration and Trade Facilitation6. Sanitary and Phytosanitary MeasuresJanuary SPS Exchange of LettersApril SPS Exchange of LettersOctober SPS Exchange of Letters7. Technical Barriers to Trade8. Trade Remedies9. Government ProcurementAnnex 9.1

10. Investment11. Cross-Border Trade In ServicesSide Letter on State MeasuresSide Letter on Peruvian Measures

12. Financial ServicesUnderstandings Regarding Financial Services and Services13. Competition Policy14. Telecommunications15. Electronic Commerce16. Intellectual Property RightsISP Side LetterRetransmission Side Letter17. Labor18. Environment19. Transparency20. Administration of the Agreement and Trade Capacity Building21. Dispute Settlement22. Exceptions23. Final Provisions

Table of Contents of the U.S. – Peru Free Trade Agreement

Foreign Investor Rights

Non-discriminatory treatment:- Same as national investors- Same as other foreign investors

Compensation for direct/indirect expropriation:- Money to investor for physical confiscation- Money to investor for decrease in value due to a policy

Fair and equitable treatment (FET): - Vague and expansive- arbitrators will define- Recent interpretations: Not upset investor expectations, e.g. by changing laws

Investor-State Dispute Settlement

Investor-State Dispute SettlementInvestor-State Dispute Settlement

Domestic Courts

International Arbitration

Judges Elected or appointed judges

Procedure Domestic courts and rules

Decisions Appeals process

Investor-State Dispute SettlementInvestor-State Dispute Settlement

Domestic Courts

International Arbitration

Judges Elected or appointed judges

Selected arbitrators

Procedure Domestic courts and rules

Decisions Appeals process

Investor-State Dispute SettelementInvestor-State Dispute Settelement

Domestic Courts

International Arbitration

Judges Elected or appointed judges

Selected arbitrators

Procedure Domestic courts and rules

International sites and arbitration rules

Decisions Appeals process

Investor-State Dispute SettlementInvestor-State Dispute Settlement

Domestic Courts

International Arbitration

Judges Elected or appointed judges

Selected arbitrators

Procedure Domestic courts and rules

International sites and arbitration rules

Decisions Appeals process Binding and final

What does “LOSING” mean to a country?

What does “LOSING” mean to a country?

Pay $$$ Pay $$$ claimed by claimed by the foreign the foreign investorinvestor

Agree to stop Agree to stop public policy?public policy?+

Shifting power from people to profitsShifting power from people to profits

Domestic lawsPeople have rightsRemedies go both waysHeard in the national

courts

Domestic lawsPeople have rightsRemedies go both waysHeard in the national

courts

PEOPLE

Shifting power from people to profitsShifting power from people to profits

Investment TreatyInvestors have rightsRemedies for investors onlyHeard in international tribunal

Investment TreatyInvestors have rightsRemedies for investors onlyHeard in international tribunal

Domestic lawsPeople have rightsRemedies go both waysHeard in the national courts

Domestic lawsPeople have rightsRemedies go both waysHeard in the national courts

PEOPLE PROFITS

Since 1991, Peru has signed trade agreements with 38 countries

Since 1991, Peru has signed trade agreements with 38 countries

Investor-State Lawsuits in PeruInvestor-State Lawsuits in Peru

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Potential Monetary Losses for PeruPotential Monetary Losses for Peru

• $5.8 billion = 3% of Peru´s GDP

• 3% of U.S. GDP = $550 billion

• $5.8 billion = 3% of Peru´s GDP

• 3% of U.S. GDP = $550 billion

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Options to Change the System

• Make investors (multinationals) go to local courts first

• Withdraw from ICSID (international court)

• Exclude the really important laws

• Cut out investor-state dispute settlement

How do you change the system?

One place to start is in the negotiation process of new trade

agreements.

Trans Pacific Partnership

Largest Free Trade Agreement ever:

40% of the Global Economy

U.S., Canada, Mexico, Japan, Peru, Chile, Australia, New Zealand, Brunei, Malaysia, Vietnam

Negotiated behind closed doors. No Congressional Representatives from any of the 12 nations have access to the

negotiations, but over 600 corporate lobbyists are involved.

Negotiations began under President Bush

President Obama want to finish the deal in April of this year.

For it to be ratified, the Congess of each of the 12 nations must approve the text of the agreement. This includes U.S. Congress.

President Obama is seeking ¨Trade Promotion Authority¨, commonly known as ¨Fast Track¨

Fast Track does not allow Congress to amend any of the text negotiated by the President´s office.

www.STOPFASTTRACK.com

For more information

• Presbyterian Hunger Programwww.pcusa.org/trade

•Institute for Policy Studies www.ips-dc.org/issues/trade

•Global Trade Watch – Public Citizen•www.citizen.org/trade

For more information

• Presbyterian Hunger Programwww.pcusa.org/trade

•Institute for Policy Studies www.ips-dc.org/issues/trade

•Global Trade Watch – Public Citizen•www.citizen.org/trade