trade agreement threatens Costa Rican environmental
by Mark Engler and Nadia Martinez
most people think of Costa Rica, they don't imagine
oil rigs stationed off the pristine beaches. Nor do
they envision pit mines cutting into the cloud-forested
mountains. But, despite the country's noteworthy conservation
efforts, its scenic vistas and extraordinary biodiversity
face ongoing threats from extractive industries -- and
from international trade deals.
Nearly two years ago, Costa Rican nationals and admirers
thought they'd been given reason to rest easy. In May
2002, responding to a large-scale mobilization of the
country's environmentalists, President Abel Pacheco
announced a moratorium on oil exploration and open-pit
mining in Costa Rica. Legislators are currently working
to give congressional backing to the executive order
and repeal laws that expose the country to extractive
At least one multinational interest isn't happy about
the developments, however, and its model of corporate
discontent may soon end the prospects of an activist
Harken Energy, a Texas-based oil company with close
ties to U.S. President George W. Bush, had previously
obtained rights to search for crude in Costa Rica. Before
failing an environmental impact review in February 2002,
it had planned to drill offshore. Now Harken is demanding
that the Costa Rican government pay upwards of $12 million
in reparations for its aborted exploits.
On March 11, Costa Rica announced that it would not
accept a proposed out-of-court resolution to the dispute,
delivering another blow to the bitter oil interest.
that's not the last word on the subject. Even as the
company contemplates sending the case back into international
courts, the Bush administration is brokering a treaty
that threatens to make the Harken suit into something
more than an obscure legal grudge match. That treaty
is the Central American Free Trade Agreement.
the U.S. and five Central American countries working
to ratify CAFTA, it's not just local environmentalists
and Texas oil barons closely watching ongoing developments
in the Harken dispute. International observers say the
case is shaping up as the latest cautionary tale of
how "free trade" agreements give corporations
the power to trump local environmental laws.
Let Us Harken Back
In 1994, the Costa Rican legislative assembly passed
a hydrocarbons law as part of a series of measures designed
to comply with a Structural Adjustment Program sponsored
by the World Bank and the International Monetary Fund.
The law opened the way for foreign corporations to win
concessions on oil exploration. Subsequently, a little-known
Louisiana-based company named MKJ Xploration successfully
bid to prospect in several blocks on the nation's Caribbean
coast. The company later sold its Costa Rican interests
to Harken Energy.
Area residents, fishers, indigenous groups, and environmentalists
learned of the deal by reading about it in the newspapers.
They quickly realized that lack of local consultation
was only the first of the plan's many problems. Offshore
drilling, they argued, would damage coral reefs and
mangrove swamps and threaten endangered sea life. They
waged a prolonged battle against the deal, and a national
board came to take their side. It ruled that Harken's
plan was not permissible under the country's environmental
impact laws. Shortly thereafter, in denying Harken's
appeal, the board cited more than 50 reasons why the
company's impact statement did not make the grade.
Harken was furious. Arguing that it had already invested
more than $12 million in the deal, it turned to international
investment treaties to sue Costa Rica -- for $57 billion.
That's no misprint. Harken wanted $57 billion, a figure
it said represented the total projected profits of the
scuttled deal. Costa Rica's annual GDP is around $17
billion, and the government's entire annual budget around
Bush with Costa Rican President Pacheco and other parties
Photo: White House.In late September 2003, soon after
the World Bank's International Center for the Settlement
of Investment Disputes notified the Costa Rican government
of Harken's claim against it, Pacheco announced that
his country would not submit to international arbitration.
He refused to acknowledge any decision made by the bank's
body, insisting instead that Costa Rica's national court
system was the legitimate venue for the dispute. A few
days later, Harken withdrew its claim and pursued plans
to reach an out-of-court agreement.
January of this year, former U.S. Sen. Robert Torricelli
(D-N.J.) traveled to San Jose to negotiate on behalf
of Harken. At the time, the Costa Rican government appeared
grateful to be eliminating the specter of a costly international
lawsuit. Environmental groups, however, greeted Torricelli
with protests outside the Environment Ministry. They
argued that the negotiations were a form of "oil
extortion" -- that Harken was punishing the country
for enforcing its environmental laws.
Whether the protests worked or, more likely the case,
Costa Rica and Harken were unable to agree on a settlement
amount, it now appears that the talks have failed. On
March 11, the government announced its position that
Harken did not have legal grounds to demand compensation
and that Costa Rica is not obliged to pay anything.
The dispute, freshly reignited, is on course to return
to international arbitration in the near future.
Kill the Fattened CAFTA?
Bigwigs from Central America and the U.S. talk trade.
Photo: U.S. State Department.As the Harken case has
moved forward, so has CAFTA. In December, the U.S. finished
negotiations with Guatemala, Honduras, El Salvador,
and Nicaragua on the regional free trade agreement.
Costa Rica, which had held back over concerns about
privatizing public industries, was brought into the
accord in January. Now, each country must ratify the
treaty if it is to become law.
For opponents of CAFTA, the Harken case is a paradigmatic
example of how corporations use international agreements
to bully countries into dropping environmental protections.
CAFTA's investor protections, which are similar to NAFTA's
notorious Chapter 11, allow companies to bring complaints
directly to international tribunals. Under the new agreement,
Costa Rica would not be able to rebuff efforts to bypass
its national courts. Instead, it would have to allow
deliberations about Harken's astronomical $57 billion
"compensation claim" to move forward on the
Regardless of whether such corporate claims are upheld,
the threat of a multi-billion-dollar lawsuit is enough
to persuade many developing countries to back down on
enforcing their environmental laws. The example of NAFTA
shows that even powerful countries are susceptible to
what activists dub environmental "blackmail."
In one famous 1998 case, the Ethyl Corporation sued
Canada over its public health ban on MMT, a fuel additive.
Canada chose to overturn its environmental provision
and pay $13 million to Ethyl rather than risk $251 million
With such cases on record, Australia refused to include
a provision in its trade agreement with the U.S. that
would let investors bypass national courts and take
disputes to international bodies. But that's something
poorer nations, who feel they cannot afford to risk
losing access to U.S. markets, do not have the power
Bob says CAFTA is planet-friendly.
Photo: Office of the U.S. Trade Representative.U.S.
Trade Rep. Robert Zoellick claims that CAFTA contains
strong protections for the environment. Likewise, Costa
Rica's minister of energy and environment, Carlos Manuel
Rodriguez, argues that CAFTA "presents an opportunity
for [Costa Rica] to seriously apply its environmental
is true that the agreement includes provisions for citizens
to submit charges regarding violations of environmental
laws. However, while there are clear consequences for
violating the agreement's investor provisions, there
is no clear enforcement mechanism to ensure action on
Moreover, CAFTA will affect legislative efforts to solidify
Pacheco's extractive industries ban. Environmental groups
such as the Costa Rican Federation for Environmental
Conservation have warned that CAFTA could complicate
if not thwart efforts by the assembly in San Jose to
reverse the 1994 hydrocarbons law.
Rica of course can repeal its hydrocarbons law. But
under the final CAFTA text, the oil companies would
be empowered to sue for lost profits," says Lori
Wallach, director of Global Trade Watch at Public Citizen.
"Plus, governments could claim that a repeal would
infringe on their rights to market access in the service
remains to be seen if the Costa Rican legislature will
continue with existing plans to reverse the law. But
it is clear that CAFTA bodes ill for environmental protection
in the participating countries. Should a subsequent
administration make the decision to go oil-rig-free
two or three years from now, it may be nearly impossible
Of course, that's only if CAFTA gains ratification.
In the U.S., the deal faces a bruising battle in Congress
if the Bush administration tries to push it through
in an election year.
Back in Costa Rica, legislators committed to extending
the country's conservationist tradition may yet prove
hesitant to subject their environmental laws to the
threat of corporate attack -- a threat that the ongoing
dispute with Harken has made all too vivid.
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Mark Engler, a writer based in New York City, is a commentator
for Foreign Policy in Focus. He can be reached via the
website DemocracyUprising.com. Nadia Martinez is a research
associate with the Sustainable Energy and Economy Network,
a project of the Institute for Policy Studies in Washington,
environmental news and humor by email.
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