The Trump administration has floated a proposal in the recent NAFTA renegotiations to remove international protections for American investors. In addition to reversing longstanding U.S. policy, such a move could harm American foreign investors by undercutting U.S. national security and leadership in securing positive development in the Americas for countries like Guatemala.
In fact, a court case in Guatemala involving American financial interests offers a prime example of how some provisions of the United States' free trade agreements are worth preserving.
Both the U.S. and Guatemala are signatories to the Central American Free Trade Agreement (CAFTA). Although most people think of agreements like CAFTA and NAFTA in terms of imports and exports, there's much more to them. From the U.S. perspective, one of the core missions of such treaties is to give teeth to rule of law and the sort of due process protections long nurtured by the U.S. legal system. U.S. businesses can invoke these protections when foreign governments are not playing fair by bringing an international claim against the offending state.
Both American and Guatemalan interests are served by the increased economic stability created by CAFTA. In the context of existing migrant flows from the CAFTA region to the U.S. — and the abuse of these flows by international criminal syndicates — improving economic stability is more than just a business benefit. It is a national security imperative.
A recent dispute in Guatemala highlights how foreign investment can positively transform an area while underscoring the need for fair trade protections for American interests. Following the conclusion of CAFTA, Tahoe Resources through its subsidiary Minera San Rafael invested $1 billion to develop one of the world's largest silver mines in Guatemala. Tahoe Resources is a Canadian company traded on the New York Stock Exchange with a substantial U.S. shareholder base. Tahoe Resources by all accounts worked closely with the government to fulfill all requirements to obtain a license to operate. It consulted extensively with local residents in the process. The mine has employed more than 1,600 Guatemalans directly, supported thousands of additional jobs in the region, and was slated to produce significant revenue for the Guatemalan government.
Then last month, a Guatemalan court ordered the mine to shut down. A nonprofit organization known as CALAS had commenced a local proceeding against the government's approval of the project. Seeking injunctive relief from the government to halt the project, CALAS argued that the indigenous Xinca tribe was not properly consulted by the government before operations began. These claims are at odds with governmental census data, and are presumably inconsistent with the government environmental impact assessment conducted to issue permits for the project.
The original order shutting down the mine provided no reasons. Nor did the court permit Tahoe or Minera San Rafael to intervene and give an account of their efforts to consult with local communities. The use of a local legal procedure thus upended a massive project requiring years of planning, without so much as affording Tahoe or its subsidiary a hearing. It is on the brink of causing close to 10,000 jobs to be lost in the region. And one might wonder what job opportunities are there for the newly unemployed workers of San Rafael, and what can they do next?
The court decision is also hard to square with Guatemalan court practice. Other disputes involving indigenous consultations typically resulted in decisions permitting consultations to take place without interrupting continued project development. But these other projects did not, on their face, involve a foreign sponsor. One is thus left to further wonder whether the nationality of Tahoe played a role in the decision to halt operation of the mine. And without reasoned support for the decision, we will presumably never know.
There has been no indication that any American financial investors will bring a CAFTA claim in this early stage of the case. But it is a good reminder why CAFTA's investment chapter, like the same chapter in NAFTA, is a good idea that supports both American and Guatemalan interests. Jobs in Central America are the best way to protect American borders.
Frederic Sourgens is an associate professor of law at Washburn University School of Law and a co-chair for the American Society of International Law's Private International Law Interest Group. His opinions are his alone and not necessarily the views of his university or working group.
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