BY MIRABAI VENKATESH
Mirabai Venkatesh is going into her second year as an MAIR student and is concentrating her studies on security, strategy, and statecraft with a regional focus on South East Asia.
The case of La Oroya, Peru provides insight into how International Investment Treaties (IITs) and their Investor-State Dispute Settlement (ISDS) processes enable foreign corporate interests to pressure governments to allow profit-driven violations of environmental and human rights in developing countries.
IITs and the ISDS Process
Despite there being no empirical evidence indicating IITs stimulate economic advancement, states sign the treaties to promote foreign investment flows into their country in hopes of promoting sustainable growth.[i]The proliferation of IITs from the 1990s onward has introduced and encouraged the ISDS process, an extra-legal framework for conflict resolution which lacks protective cornerstones of other legal systems, allowing foreign investors to level legal action against state governments contrary to international legal norms.[ii][iii] Unlike international or domestic courts, the ISDS process does not consider domestic or international law in its resolutions, nor does it examine or set legal precedents or take into account the perspective of individuals, groups, and states affected by proceedings.[iv][v] Because all judgements rest on arbitrators’ interpretations of treaty language, ISDS rulings can potentially violate the domestic laws of home countries, forcing these countries to choose between foreign investment and important domestic policies. Meanwhile, ISDS claims are one sided, allowing investors to pursue claims against states, but leaving states with few options to pursue claims against investors.
These shortcomings culminate in an international dispute settlement process that places the interests of wealthy multinational corporations over the sovereignty of states and the human rights of individual persons, stunting sustainable development rather than advancing it by making it difficult for low and middle income countries to establish environmental regulations for fear of facing steep financial penalties. In fact, many low and middle income countries allocate funds in their annual budgets for ISDS settlements, with the average ISDS claim amount against states sitting at $1.16 billion USD in 2021 and expected to grow. With 94% of ISDS-ordered financial transfers going to individuals worth over $100 million USD and 66% of ISDS claims filed against low and middle income countries, this dispute settlement framework not only theoretically, but historically, promotes global inequality.[vi]
Case Study: La Oroya, Peru
La Oroya, Peru, one of the world’s most polluted cities, is severely contaminated by the mining waste, toxic dust, and acidic fumes emitted by a 100-year-old metal smelting plant. These toxins have worked their way into the city’s population, with 97% of La Oroya’s children exhibiting dangerously high blood lead levels.[vii] [viii]
For two-thirds of its century-long existence La Oroya’s metal smelting plant has been owned and operated by U.S. companies.[ix] In 1997, a U.S. private holding company called Renco Group acquired the smelter through one of its subsidiaries, Doe Run Peru (DRP), and operated the plant from 1997-2009. Despite being required to significantly reduce harmful contaminants emitted by the facility, DRP failed to comply with the environmental standards set forth by the Peruvian government.[x] [xi] In 2009, DRP shut down operations, pinning its closure on the high-costs associated with environmental compliance.[xii]
Legal conflicts related to the pollution of La Oroya advanced starting in 2006, when La Oroya’s residents sued the Peruvian government at the Inter-American Commission on Human Rights for allowing the smelter to pollute at will.[xiii] Meanwhile, in 2007 and 2008, attorneys filed a class action lawsuit against Doe Run on behalf of La Oroya’s children in Missouri courts.[xiv] In 2011, the Renco Group retaliated against this legal pressure by filing its own suit on behalf of its subsidiary, launching an $800 million investor-state claim against the government of Peru under the 2009 Free Trade Agreement (FTA) between the U.S. and Peru.[xv] This investor-state claim allowed DRP to apply pressure on the Peruvian government to loosen environmental regulations and extend deadlines for compliance, in addition to enabling DRP to avoid legal accountability to the people of La Oroya in Missouri state courts.
Ultimately, Renco and DRP were able to use the threat of their ISDS claim to force the Peruvian government to capitulate on matters of environmental regulation time and time again at the expense of La Oroya’s workers, families, and children.[xvi] As a result, the Peruvian government has borne the brunt of reparations despite operating the La Oroya facility for only a third of its century-long existence.[xvii]
Recommendations for Moving Forward
While a UN working body has been established to address the shortcomings of the ISDS framework, the following recommended changes must also be implemented to remedy the massive power imbalances perpetuated by IITs:[xviii]
ISDS arbitrators should be required to reject cases or refer them to better-equipped bodies in disputes where the human rights of a third party are being violated.
ISDS process must become less one-sided, and allow states to advance their own interpretations of treaties, understandings of international law, and right to self-determination in arbitrations.
High-income countries responsible for the majority (86%) of ISDS claims against low and middle-income countries need to closely monitor the ISDS claims being advanced by their corporate interests and denounce ISDS claims where they endanger sustainable development, environmental justice, and human rights.[xix]
Ultimately, if a more equitable power balance cannot be struck through reform, the ISDS framework ought to be abandoned altogether, with low and middle-income countries withdrawing consent to ISDS arbitration or terminating existing IITs in pursuit of a more just framework.
PHOTO CREDIT: Graham Styles licensed under CC BY 2.0.
References
[i] “Primer on International Investment Treaties and Investor-State Dispute Settlement.” Columbia Center on Sustainable Development, 2022. https://ccsi.columbia.edu/content/primer-international-investment-treaties-and-investor-state-dispute-settlement.
[ii] “Investors v. Climate Action.” Center for International Environmental Law, September 2022. https://www.ciel.org/investors-v-climate-action/.
[iii] Cosbey, Aaron. “Can Investor-State Dispute Settlement Be Good for the Environment?” International Institute for Sustainable Development, 2017. https://www.iisd.org/articles/policy-analysis/can-investor-state-dispute-settlement-be-good-environment.
[iv] “Primer on International Investment Treaties and Investor-State Dispute Settlement.” Columbia Center on Sustainable Development, 2022. https://ccsi.columbia.edu/content/primer-international-investment-treaties-and-investor-state-dispute-settlement.
[v] “Primer on International Investment Treaties and Investor-State Dispute Settlement.” Columbia Center on Sustainable Development, 2022. https://ccsi.columbia.edu/content/primer-international-investment-treaties-and-investor-state-dispute-settlement.
[vi] “Primer on International Investment Treaties and Investor-State Dispute Settlement.” Columbia Center on Sustainable Development, 2022. https://ccsi.columbia.edu/content/primer-international-investment-treaties-and-investor-state-dispute-settlement.
[vii] “Peru— La Oroya Lead Pollution.” Pure Earth. Accessed May 24, 2023. https://www.pureearth.org/project/la-oroya-lead-pollution/.
[viii] Brown, Hannah. “Health or Survival? The Impossible Choice Facing One Peruvian Mining Community.” euronews.green, November 23, 2022. https://www.euronews.com/green/2022/11/23/health-or-survival-the-impossible-choice-facing-one-peruvian-mining-community.
[ix] “Poison Harvest: Deadly U.S. Mine Pollution in Peru.” GovInfo.gov. U.S. Government Publishing Office, 2012. https://www.govinfo.gov/content/pkg/CHRG-112hhrg75164/html/CHRG-112hhrg75164.htm.
[x] Patel, Avni. “Members of Congress, Obama Administration Go to Bat For Billionaire Investor .” ABC News. ABC News Network, 2011. https://abcnews.go.com/Blotter/members-congress-obama-administration-bat-billionaire-investor/story?id=13084422.
[xi] “Renco Uses U.S.-Peru FTA to Evade Justice for La Oroya Pollution.” citizen.org. Public Citizen , December 2012. https://www.citizen.org/wp-content/uploads/renco-la-oroya-memo.pdf.
[xii] Kramer, Anna. “La Oroya, Peru: Poisoned Town.” Oxfam, November 30, 2011. https://www.oxfamamerica.org/explore/stories/la-oroya-peru-poisoned-town/.
[xiii] Brown, Hannah. “Health or Survival? The Impossible Choice Facing One Peruvian Mining Community.” euronews.green, November 23, 2022. https://www.euronews.com/green/2022/11/23/health-or-survival-the-impossible-choice-facing-one-peruvian-mining-community.
[xiv] “Renco vs. Peru: Metal Smelter Pollution.” ISDS Platform, 2021. https://www.isds.bilaterals.org/?renco-vs-peru-metal-smelter.
[xv] “Peru: U.S. Mining Company Revives Lawsuit.” Maryknoll Office for Global Concerns, October 4, 2018. https://maryknollogc.org/article/peru-us-mining-company-revives-lawsuit.
[xvi] Fox, Audrey. “Pay the Polluter $800 Million! Trade Deal Injustice for the Children of La Oroya.” Friends of the Earth, October 4, 2012. https://foe.org/blog/pay-trade-deal-injustice-la-oroya/.
[xvii] “Poison Harvest: Deadly U.S. Mine Pollution in Peru.” GovInfo.gov. U.S. Government Publishing Office, 2012. https://www.govinfo.gov/content/pkg/CHRG-112hhrg75164/html/CHRG-112hhrg75164.htm.
[xviii] “Primer on International Investment Treaties and Investor-State Dispute Settlement.” Columbia Center on Sustainable Development, 2022. https://ccsi.columbia.edu/content/primer-international-investment-treaties-and-investor-state-dispute-settlement.
[xix] “Primer on International Investment Treaties and Investor-State Dispute Settlement.” Columbia Center on Sustainable Development, 2022. https://ccsi.columbia.edu/content/primer-international-investment-treaties-and-investor-state-dispute-settlement.