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Reversing privatizations, and fortunes, in Mexico and Honduras

Mining and land reforms draw both corporate flack and international calls for investment treaty termination

May 31, 2023

4-minute read

This is an edited and updated translation of an article that originally appeared in La Jornada. Click here to read the original in Spanish.

Recent mining reforms in Mexico and the cancellation of an outrageous private cities program in Honduras have drawn criticism and celebration from different sectors in Canada and the United States.

Actual and threatened investor-state lawsuits against these public interest measures have also produced a wave of international solidarity and strengthened demands to fix lopsided U.S. and Canadian trade and investment treaties in the hemisphere.

At the end of April, the Mexican senate approved a new mining law that shortens the maximum length of mining concessions from 50 to 30 years, moderately strengthens water-taking rules, and requires firms to give back five per cent of profits to the communities in which they operate, among other changes. Although welcomed as a start, community groups like the Mexican Network of People affected by Mining argue that all mining should be prohibited.

Government officials and mining companies in Canada and the United States, on the other hand, are complaining that the Mexican measures will discourage foreign investment and undermine North American competitiveness.

A wealthy Canadian mining investor said the “aggressive” reforms will be “extremely damaging” to Mexico. “The mining law reforms reduce Mexico’s attractiveness since companies now have to deal with an increased burden of pre-consultation, impact studies and water concessions, among other things,” claims the industry news site Mining.com. “The new law also requires financial commitments (bonding) that would be difficult to meet for junior explorers.”

On April 26, ahead of the Mexican senate vote, Canadian International Trade Minister Mary Ng urged Mexico’s Economy Secretary Alicia Buenrostro to consider the interests of Canadian miners, “which represent the largest group of foreign investors in Mexico’s mining sector.” Ng said Mexico must ensure it is “upholding the spirit” of commitments made by North America’s three leaders in January related to mining and critical minerals cooperation.

What spirit is Minister Ng alluding to? Could another state-to-state dispute under the USMCA, which replaced NAFTA in 2020, be on the table?

Both Canada and the U.S. launched consultations—the first step in a USMCA Chapter 31 dispute—with Mexico last year to protest oil, gas and electricity sector reforms, and the U.S. has requested separate discussions on a Mexican import ban on genetically modified corn. Minister Ng will no doubt come under pressure from industry to take Mexico’s mining reforms to dispute settlement as well. She will have a chance to raise the matter again with Buenrostro during a June 12-13 Canada-Mexico High Level Economic Dialogue meeting in Canada.

Canada’s official support for the mining industry rather than wider public interests is long-standing and widely understood in Mexico. As MiningWatch Canada notes, “More than 1,000 pages of internal memos and emails show that the Canadian Embassy in Mexico chose to support [Canadian miner] Blackfire Exploration in advancing its ‘Payback’ mining operation despite widespread local opposition—and despite knowing about credible threats to [environment defender Mariano Abarca’s] life.” (You can register here for a June 5 webinar on the efforts of Mariano’s family to seek justice in Canada.)

Minister Ng’s official condemnation of Mexico’s recent reforms may also embolden junior and larger mining interests to consider challenging the new measures before unaccountable supranational investment tribunals via investor-state dispute settlement (ISDS). Canadian miners regularly use ISDS in Canadian trade and investment treaties to claim enormous compensation for measures that undermine their plans or profits. Consider it a publicly financed, publicly legitimized form of international extortion.

Luckily, the USMCA’s investment chapter cannot be used by mining companies to sue Mexico. Firstly, the ISDS system is maintained only between the U.S. and Mexico for companies holding government contracts related to hydrocarbons, power generation, telecommunications, transportation, and some infrastructure projects. A three-year period for launching ISDS cases under the old NAFTA investment chapter expires at the end of June.

However, Canadian mining companies—and U.S. firms domiciled in Canada—can use the NAFTA-like ISDS process in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to the same effect. To date, it appears no ISDS claims have been raised under the CPTPP, but already legal firms are encouraging Canadian mining firms to consider this option for contesting Mexico’s reforms.

As Canada prepares to take over the coordinating role for the CPTPP trade bloc from New Zealand, Mexico should consider raising the issue of removing ISDS from the treaty. This would not be so radical, given that both Australia and New Zealand have signed side-letters with other CPTPP countries, including newcomer the United Kingdom, disapplying the agreement’s investment arbitration system.

In Europe, too, rich nations are withdrawing from the world’s most used ISDS system—the Energy Charter Treaty. What’s good for Europe is surely good for Latin America. Indeed, the relatively new Honduran government is studying how it might remove itself from exploitative investment treaties in the wake of an outrageous U.S.-based lawsuit involving privatized “charter cities.”

The U.S. company Próspera filed a stratospheric $10.7 billion USD investment lawsuit against Honduras last year. That is equivalent to two-thirds of the Honduran budget or about four times annual government social spending.

Próspera’s vision for a radically libertarian, unregulated and self-governing free trade zone on an island off the coast of Honduras riled local populations to the point where opposition to the project helped elect the government of Xiomara Castro in 2022. Castro quickly repealed the law establishing Employment and Economic Development Zones (ZEDE)—the trigger for Próspera’s ISDS suit under the Dominican Republic–Central American Free Trade Agreement (DR-CAFTA).

Cases’s such as Próspera’s versus Honduras, and the continued use of ISDS against Mexico to contest natural resource conservation measures, are drawing growing international opposition to investment treaties and international solidarity for treaty reform or termination efforts.

Only a few weeks ago, U.S. Senator Elizabeth Warren and Representative Lloyd Doggett sent a letter to U.S. Trade Representative Katherine Tai and Secretary of State Tony Blinken demanding the elimination of the ISDS system. The letter, which was also signed by more than 30 congresspersons and sponsored by several non-governmental organizations, requests the U.S. administration:

intervene—through a statement of support, amicus brief, and any other means at your disposal—in support of Honduras’ defense in the Próspera ISDS case and to ensure that such egregious cases can no longer disrupt democratic policymaking by working to eliminate ISDS liability in pre-existing agreements in our hemisphere.

Enrique Reina, the Honduran secretary of foreign affairs and international cooperation, and Rodolfo Pastor, secretary of state of the presidency of Honduras, responded positively to the U.S. effort. "International solidarity against mechanisms that threaten the sovereignty of nations is critical in a context in which Honduras seeks to defend its territory and natural resources from corruption that subjects the state to the whim of private interests," said Pastor.

Mexico, Central America and all of Latin America must unite to repeal ISDS wherever recourse to the discredited private arbitration system exists in international treaties. The European Union is eliminating it among its own countries; Canada and the United States eliminated it between themselves when they renegotiated NAFTA. The spirit of hemispheric cooperation that Canadian Trade Minister Ng described would be truly realized under this outcome.

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