The document summarizes environmental contamination issues in La Oroya, Peru caused by a smelting plant. It notes that La Oroya is one of the most polluted cities in the world, with high lead levels in children. The smelter is owned by Renco Group, a US corporation. After Peru tried to enforce environmental regulations, Renco sued Peru for $800 million using investor protections in a US-Peru free trade agreement. The document then discusses how large corporations are increasingly using investor-state dispute settlement mechanisms in trade agreements to undermine environmental regulations.
Presiding Officer Training module 2024 lok sabha elections
Stopping Multinationals from Running Roughshod over Environmental Regulations
1.
2. 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.
3. No Greater Rights
for Foreign Investor
Stopping Multinationals from Running
Roughshod of Environmental Regulations
An Advocacy Campaign of the Presbyterian Hunger Program
Jed Koball
Presbyterian Hunger Program
Lima, Peru
4. 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
7. • 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.
8. Our 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
9. In 2009, two events change the
scenario and alter our response
10. 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.
11. 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
12. 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
13. 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.
14. Iconic Cases
Metalclad v. Mexico
Chevron v. Ecuador
Pacific Rim v. El Salvador
CANACAR v. U.S.
Phillip Morris v. Uruguay
Renco Group v. Peru
20. Preamble
1. Initial Provisions and General Definitions
2. National Treatment and Market Access for Goods
US Tariff Schedule
Annex to US Tariff Schedule
Peru Tariff Schedule
Appendix to Peru Tariff Schedule
ITA Side Letter
3. Textiles and Apparel
4. Rules of Origin Procedures
Annex - Product Specific Rules
5. Customs Administration and Trade Facilitation
6. Sanitary and Phytosanitary Measures
January SPS Exchange of Letters
April SPS Exchange of Letters
October SPS Exchange of Letters
7. Technical Barriers to Trade
8. Trade Remedies
9. Government Procurement
Annex 9.1
10. Investment
11. Cross-Border Trade In Services
Side Letter on State Measures
Side Letter on Peruvian Measures
12. Financial Services
Understandings Regarding Financial Services and Serv
13. Competition Policy
14. Telecommunications
15. Electronic Commerce
16. Intellectual Property Rights
ISP Side Letter
Retransmission Side Letter
17. Labor
18. Environment
19. Transparency
20. Administration of the Agreement
and Trade Capacity Building
21. Dispute Settlement
22. Exceptions
23. Final Provisions
Table of Contents of the
U.S. – Peru Free Trade Agreement
21. 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
27. What does “LOSING” mean to a
country?
Pay $$$Pay $$$
claimed byclaimed by
the foreignthe foreign
investorinvestor
Agree to stopAgree to stop
public policy?public policy?+
28. Shifting power from people to profits
Domestic laws
People have rights
Remedies go both ways
Heard in the national
courts
PEOPLE
29. Shifting power from people to profits
Investment Treaty
Investors have rights
Remedies for investors only
Heard in international
tribunal
Domestic laws
People have rights
Remedies go both ways
Heard in the national courts
PEOPLE PROFITS
32. Potential Monetary Losses for Peru
• $5.8 billion = 3% of Peru´s GDP
• 3% of U.S. GDP = $550 billion
32
33. 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
34. How do you change the system?
One place to start is in the
negotiation process of new trade
agreements.
35. 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.
36. 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.
39. For more information
• Presbyterian Hunger Program
www.pcusa.org/trade
•Institute for Policy Studies
www.ips-dc.org/issues/trade
•Global Trade Watch – Public Citizen
•www.citizen.org/trade
Editor's Notes
Investment agreements grant many different rights, but I’m going to go into three of them today.
Non-discriminatory treatment: This is one of the clearest rights: don’t discriminate against foreign investors. Countries have to treat foreign investors the same as national investors, and the same as investors from any third state.
This is typically not a problem for investor-state claims, because most states have this in their constitutions.
Compensation:
States have to compensate the investor for any property they physically take- which is called Direct Expropriation. this is common in domestic laws as well.
But there has been a shift- now, you have to compensate an investor for the loss in value to their property due to a regulation or policy, which is called an indirect expropriation.
Most countries provide for direct expropriation in their domestic laws, but indirect expropriation is a significant departure. The US and Peru, for example, both have rules against that kind of expropriation, which these agreements VIOLATE-- meaning the foreign investors get more rights than domestic investors --> NO GREATER RIGHTS
Fair and Equitable Treatment: This is the vaguest right, so it is the most expansive and easiest for investors to use. It is the right to be treated fairly, but investment agreements do not set out rules for what 吐air� is. So, because investors bring the claims and the tribunals make the decisions, they get to define what 吐airness� is. The recent trend in arbitration decisions is that countries violate this right when they upset investors’ profit expectations, for example, by changing tax laws, or in the case of La Oroya, not extending the PAMA.
These rights are controversial because they offer more protection to foreign investors than domestic investors get. In the US, we call this the 渡o greater rights� issue.
Vast majority of claims have been brought in the last 10 years
And have involved challenges to a wide variety of government measures, including reggulations of hazardous waste facilities, bans on toxic chemiicals, and recently, laws in Uruguay and Australia regarding the packaging and labeling of cigarettes
This trend has made IIIAs increasingly controversial: The WTO was forced to drop proposals for a global Iinvesment agreement in the mid 1900s, the OECD was forced to drop its plan for a “MAI” in the late 1990s. IIAs are exrtremely controversial in the United States. The Obama administration has delayed for almost 2 years releasing its new model for an IIA because the issue of so contrroversial, an opposition is building in Europe to a new EU-wide investment policy. And signiifiancly, the best news so far, Australia has announced that it willl not agree to ISDS in any new agreements, including the TPPA. (Austrialia has already succeedingly in exlcudig ISDS in the FTA iit signed w/the U.S. several years ago.
to clarify the legal backdrop
First, we’re going to look at what international investment treaties do. Next, I’ll explain some of the investor rights given in these treaties. Third, I’ll walk through how investor-state arbitration differs from the old system of domestic courts. Last, I’ll go through a few options for how we can reform investment law, and what you can do to help protect democracy and justice for our communities.
Number of IIAs has about doubled in last 10 to 15 years
Some IIAs provide investors with greater rights than others
Complexity increased by provisions (MFN) that give investors any more favorable rights provided under another countries treaties
3. increasingly common for corporations to consider the availability of IIA rights when deciding how to structure there international subsidiaries, in order to maximize their rights under II1As
Investment agreements grant many different rights, but I’m going to go into three of them today.
Non-discriminatory treatment: This is one of the clearest rights: don’t discriminate against foreign investors. Countries have to treat foreign investors the same as national investors, and the same as investors from any third state.
This is typically not a problem for investor-state claims, because most states have this in their constitutions.
Compensation:
States have to compensate the investor for any property they physically take- which is called Direct Expropriation. this is common in domestic laws as well.
But there has been a shift- now, you have to compensate an investor for the loss in value to their property due to a regulation or policy, which is called an indirect expropriation.
Most countries provide for direct expropriation in their domestic laws, but indirect expropriation is a significant departure. The US and Peru, for example, both have rules against that kind of expropriation, which these agreements VIOLATE-- meaning the foreign investors get more rights than domestic investors --> NO GREATER RIGHTS
Fair and Equitable Treatment: This is the vaguest right, so it is the most expansive and easiest for investors to use. It is the right to be treated fairly, but investment agreements do not set out rules for what 吐air� is. So, because investors bring the claims and the tribunals make the decisions, they get to define what 吐airness� is. The recent trend in arbitration decisions is that countries violate this right when they upset investors’ profit expectations, for example, by changing tax laws, or in the case of La Oroya, not extending the PAMA.
These rights are controversial because they offer more protection to foreign investors than domestic investors get. In the US, we call this the 渡o greater rights� issue.
When an investor claims a violation of one of those rights, then the dispute goes to international arbitration.
International arbitration is a whole different type of court.
Instead of the people electing judges, the parties select arbitrators who are frequently investment lawyers. They normally have no background in environmental or public health regulations, and may or may not have experience making such serious decisions.
The location for investor-state arbitrations can be very inconvenient, and expensive because most of these are either at ICSID in Washington DC or the Hague in the Netherlands. Either way, it means lots of travel fees in addition to attorney fees.
Also, the rules for international arbitration are different than domestic courts, and they often apply different law. For instance, only investors can claim damages, and it is hard for a country to counter-sue.
Unlike most domestic court systems, such as ours in the US, where the losing party has a right to appeal the decision, it is normally impossible to appeal a decision by an international arbitration tribunal. Annulment is sometimes an option, but essentially all you get is another 3 investment lawyers on another arbitration tribunal, starting the cycle all over again.
When an investor loses a claim, they do not have to pay out anything. But, when a state loses a claim, there can be big repercussions.
When a country loses, they have to pay the money the investor claimed in the lawsuit, which is frequently millions of dollars, and can be billions.
These large payouts can cause a country to reconsider passing environmental or health legislation in the future.
Also, increasingly, investors are asking in their lawsuits for the country to be barred from continuing the public policy, or what we call injunctive relief.
We don’t know where this trend will go, but tribunals may be able to tell countries what policies they can and cannot enact.
Under the old domestic law system, people were granted rights by constitutions, which also gave rights to investors.
If there was a problem with an investor, anyone could sue: the investor could sue the state, people could sue the investor, the state could sue the investor, etc.
And, all of those lawsuits were heard in national courts, where the judges are elected or appointed by the people of their country.
When investment treaties are involved, they shift the balance of power.
Investment treaties give rights and protections to investors only, not to people.
Only the investors can sue for money, the states cannot bring a lawsuit.
And, instead of normal courts, those lawsuits are heard in international tribunals that are convened only to listen to that lawsuit- avoiding national courts altogether.
Peru – over 30 IIAs in the last 20 years
- Peru’s 1993 Constitution permitted arbitration of foreign investor claims, contrary to previous law?
-- Although I believe the Constitution still requires equality of treatment of foreign and domestic property owners
6 concluded, one settled, three in favor of Peru, two against, $25 million paid out, almost 5 billion pending
450 billion is what the U.S. spends on non-security discretionary spending, if the U.S. faces as much risk as Peru it would be a really big deal
But it’s not a lost cause. There are a lot of different ideas about reforming international investment law floating around, and I’ll discuss a few of them today.
First, we could require investors to go through local courts before international arbitration, which is called 兎xhaustion.� Each country has a judicial system for a reason- we should give them the chance to resolve the dispute before taking it to an international tribunal.
There are also bigger gestures, such as withdrawing from ICSID like Bolivia or Venezuela. But that tactic has its limits because ICSID is just one type of investor-state arbitration- so investors can go to a different tribunal.
Next, we could follow the lead of the South American countries who are creating a new set of investment rules, and allow countries to cut out the really important laws. This way, countries could identify which policies are most vital to protecting the public interest, and make sure the tribunals couldn’t touch them. It is a way to address the concerns in Latin American countries regarding the extractive industry, namely mining and oil claims.
People are also discussing cutting out investor-state arbitration altogether, and just letting domestic courts decide these disputes.
But really, these are options for discussion that we need to think about as we go forward in addressing this problem.