[CTC] Change.org petition to Stephen Colbert re: FTA

[Gimena Sanchez]

Pay the polluter $800 million! Trade deal injustice for the children  
of La Oroya.

Posted Apr. 16, 2012 / Posted by: Bill Waren


“There is a silent epidemic here.  The effects on the children are not  
easily visible, but they have all kinds of serious health problems,  
and those will only get worse if the smelter reopens,” says Hugo  
Villa, a local doctor.

According to the Blacksmith Institute, a non-profit pollution think  
tank, the children of La Oroya, Peru live in one of ten most polluted  
places on earth.  In this town of 33,000 high in the central Andes, a  
metallic smelter has contaminated the air, land, and water for decades.

The La Oroya smelter is owned by Doe Run Peru, which through a complex  
network of subsidiaries is controlled by the Renco Group. Renco is the  
holding company of Ira Rennert, one of the wealthiest men in the  
United States.

The children of La Oroya have been given a respite from new emissions,  
but only because Doe Run has shut down the smelter after claiming  
financial hardship, in part due to their environmental remediation  
obligations. The company has repeatedly failed to meet its contractual  
and legal deadlines to clean up the site, and the Peruvian authorities  
have demanded clean-up costs within the context of bankruptcy  
negotations.

In the face of this action, Renco has retaliated, and sued Peru before  
an international investment tribunal that has been convened under the  
terms of the U.S.-Peru free trade agreement.  Renco is seeking $800  
million in damages for the cost of complying with Peru’s environmental  
and mining laws. The company is also demanding that the international  
tribunal issue a declaration that Peru, not Renco, is exclusively  
liable for personal injury claims in a case filed on behalf of  
children from La Oroya before a Missouri state court in the U.S.

The La Oroya health crisis

Dr. Sanjay Gupta, in a 2008 CNN special on the Planet in Peril, put a  
spotlight on the controversy. “The poisoning of La Oroya, Peru… Smoke  
stacks from a factory called the Doe Run Peru smelter stand high on  
the horizon. Rocks and minerals are brought here and processed into  
metals like lead, copper, and zinc...I’ll tell you, you can taste the  
stuff in the back of your throat.  It burns your eyes a little.  It’s  
sulfur dioxide. It’s arsenic.  Its lead, and it’s all the by-products  
that come from this particular smelting plant.”

Dr. Gupta interviewed Fernando Serrano, a public health expert from  
Saint Louis University, who has conducted scientific research at La  
Oroya.  Serrano says that among children between 6 and 12 years old  
living in the town of La Oroya, 97 percent have dangerously high  
levels of lead in their blood.

The Inter-American Association for Environmental Defense in 2002  
released the results of a comprehensive study of the health effects of  
pollution at La Oroya.  Blood samples showed lead levels for children  
over ten years old in excess of three times the maximum recommended by  
the World Health Organization -- more than enough to cause brain  
damage. Levels of sulfur dioxide in the air at La Oroya were at an  
average of two or three times higher than WHO standards.  Sulfur  
dioxide pollution damages the lungs and leads to higher death rates.  
Arsenic was detected in the air at levels associated with cancer and  
reproductive problems, while cadmium, which can damage the kidneys and  
lungs, was also found.

Rennert’s environmental & financial record

The smelter at La Oroya is owned indirectly and controlled though a  
series of corporate affiliates, by U.S. billionaire Ira Rennert.  He  
first attracted media attention inthe U.S. in the late 1990s when his  
vast magnesium production facility in Utah was ranked by the U.S.  
Environmental Protection Agency as number one on its Toxic Release  
Inventory. More recently, his magnesium company went bankrupt,  
potentially leaving taxpayers with the bill for cleaning up an 84  
square mile evaporation complex, near the Great Salt Lake, consisting  
of canals and ponds full of waste salt.  Rennert has also attracted  
public attention for his generous campaign donations to politicians,  
his free spending on top-tier lobbyists, and his construction of  a  
$170 million mansion on Long Island that is said to be the largest  
private residence in the United States.

Ira Rennert’s U.S. holding company, Renco, acting through  
intermediaries including Doe Run Peru, acquired indirect but effective  
control of the La Oroya smelting complex in 1997.  Jeffery Zelms, one  
of Rennert’s top executives, said acquisition of the La Oroya facility  
fit into the company’s strategic business plan: “We had to take into  
account the tremendous negative business climate in the U.S. toward  
natural resources companies.”

What Zelms did not count on was that the courthouse doors in the U.S.  
state of Missouri were open to the children of La Oroya.  Missouri and  
some other U.S. states allow foreign plaintiffs to bring personal  
injury claims against companies located in the state if corporate  
decisions leading to the injury were also made in-state.

The lawsuit in Missouri courts may have had some reasonable chance of  
success because citizens of the “Show Me” state have seen the dangers  
of metallic smelting.  For example, a Renco subsidiary was required to  
pay a $7 million penalty and spend $65 million to clean up toxic  
pollution from its Doe Run Missouri lead refinery near St. Louis.

Apparently to avoid such a “negative business climate,” Ira Rennert  
invested in Peru in 1997.  His company, Doe Run Peru, bought the La  
Oroya complex, which can refine both base metals like lead, copper and  
zinc and precious metals like gold and silver.  DRP promised to pay  
for a large part of the environmental clean up at the La Oroya site,  
including construction of a new sulfuric acid plant.  But DRP never  
built the sulfuric acid plant; it also failed to meet deadlines under  
its government-mandated remediation plan, despite receiving two  
extensions on these deadlines in 2006 and 2009.

DRP claimed that the global financial crisis, along with other  
factors, prevented it from meeting its environmental clean up  
obligations.  But critics have suggested that the company’s heavy debt  
burden was a major cause of its failure to keep its promises. They  
claim that Ira Rennert’s business strategy is to load up subsidiaries  
with junk bond debt and then have them pay huge dividends the Renco  
Group, leaving the subsidiaries in danger of insolvency and unable to  
clean up the toxic pollution that they produce.

What is known is that after years of profitability, which allowed it  
pay large dividends to its U.S. owners, Doe Run Peru reported losses  
in 2008.  Its credit line was cancelled in February 2009, and it  
stopped paying suppliers.  Although DRP obtained a large loan and was  
able to obtain some new credit from its mineral suppliers, the La  
Oroya smelter ceased operations in June, 2009 and 3,200 workers were  
laid off.

In August 2009, DRP was shoved into bankruptcy proceedings in Peru by  
one of its suppliers.  Predictably, the company turned testy.  Peru’s  
Ministry of Energy and Mines requested $ 259 million to complete the  
clean up of the La Oroya site, as well as for related costs and  
interest.  Ira Rennert claimed that most of Doe Run Peru’s debt was  
owed to him.

In July 2010, the government of Peru revoked the operating permit for  
the La Oroya smelting facility, because the company had failed to show  
that it would secure financing for the project.  In March 2011, it was  
fined $2.5 million for failing to finance the sulfur plant needed to  
remediate the site.

On April 13, 2012, DRP’s bankruptcy proceedings in Peru reached a  
dramatic turning point. DRP’s creditors rejected the companies  
restructuring plan. The company’s plan for reopening the smelter  
complex would have required the government of Peru to provide another  
extension on the deadline for DRP to complete its clean up  
obligations.  It also would have required the Peruvian government to  
take financial responsibility for the personal injury lawsuits filed  
in the United States on behalf of children from La Oroya.

The board of creditors voted to start a process of “operational  
liquidation” that could result in Renco losing control of the  
facility. The creditors may have already started looking for another  
company to operate the La Oroya smelter. Under the “operational  
liquidation,” Renco will retain control of the smelting complex for  
six months with an opportunity to ask for another six month extension,  
while the smelter remains closed but workers are paid.  If Doe Rum  
Peru does not promptly submit a revised restructuring plan to the  
board of creditors that meets the board’s approval, then liquidation  
is likely.

Doe Run sues Peru under U.S. trade agreement.

On 29 December 2010, Ira Rennert’s holding company, Renco, filed its  
notice of intent to sue Peru under the terms of the investment chapter  
of the U.S.-Peru free trade agreement. Renco argues that Peru’s  
failure to appear and take financial responsibility for the Missouri  
lawsuits violates the contract under which it purchased the La Oroya  
smelting complex from the government of Peru.  It also claims that  
Peru ought to have granted it additional extensions to clean up the La  
Oroya site.  Renco therefore is demanding $800 million from Peruvian  
taxpayers in compensation for the burden of government interference  
with its business; it is also asking the tribunal for a declaration  
that the Republic of Peru is exclusively liable for any damage award  
resulting from the U.S. litigation.

The investment chapter of the U.S.-Peru free trade agreement allows  
Renco and its subsidiaries to sidestep Peru’s administrative agencies  
and courts, in favor of a business-friendly international tribunal.  
The Renco tribunal will make its substantive decisions based on the  
text of the FTA investment chapter  and customary international law,  
both of which are to be interpreted in light of the purpose of the  
agreement: to promote international investment.  In other words,  
values of international commerce may trump other values, such as  
protecting the Andean environment and the health of the children of La  
Oroya.

By invoking the U.S.-Peru FTA and bringing suit before an  
international investment tribunal, a U.S. company like Renco can turn  
the tables on government regulators and demand money damages for the  
cost of complying with public health, financial, and environmental  
measures.  Such a damage award can potentially include financial  
compensation for the reduced value of its investment in light of  
diminished expectations of future profits. Cynics might say it works  
as a kind of insurance policy for your business plan covering the risk  
of unexpected changes in public policy.

These damage awards can be large enough to destabilize public  
budgets.  Argentina now faces billions of dollars in potential  
liability resulting from international investor claims, for example.  
The prospect of a ruinous judgment can force a country to back away  
from protecting the environment and public health, which is a danger  
right now in Peru as it contemplates Renco’s $800 million claim.  
Speculation has been rife that Peru may consider a legal retreat on  
its environmental enforcement actions at La Oroya to allow the smelter  
to reopen without an adequate clean up in order to put people back to  
work, restore profitable exports of refined metals, and avoid the  
financial uncertainty resulting from the Renco suit.  On the other  
hand, Peru’s decision on February 13 to start a process that may lead  
to the liquidation of Doe Run Peru suggests that the government is in  
no mood to retreat.

One key to whether the Renco tribunal would ever order Peru to pay  
such a massive claim of damages lies in the article in the U.S.-Peru  
investment chapter on expropriation. It requires Peru to financially  
compensate U.S. investors if it “directly or indirectly” nationalizes  
or expropriates their investment. Given the vague terms, such as  
“indirect expropriation,” arbitrators have room to read the language  
broadly or narrowly.  Clearly, if Doe Run Peru is finally liquidated  
as a result of bankruptcy proceedings, Renco’s argument that its  
property has been expropriated or nationalized will be bolstering to  
some degree, as will its demand for at least $800 million in damages.

Another  key to whether the tribunal would ever order Peru to pay  
damages lies in the article in the U.S.-Peru investment chapter  
related to the “minimum standard of treatment under international  
law,” or MST.  The MST obligation, which includes the right to “fair  
and equitable treatment,” is a vague standard that permits foreign  
investors to challenge government actions on the grounds that they are  
either procedurally or substantively unfair in some fundamental way.

As with many of the obligations in the U.S.-Peru investment chapter, a  
finding of an MST violation in no way requires proof of discrimination  
against the foreign investor: MST is an absolute standard that sets  
limits on the scope of public policy measures, regardless of whether  
they are applied evenhandedly.

  The amorphous concept of “minimum standard of treatment” would allow  
the tribunal considerable discretion in deciding whether Peru engaged  
in regulatory overreach.  Because there are no specific criteria  
underpinning the MST concept, it is difficult to predict if the Renco  
tribunal would find that basic justice has in some way been denied.    
It would be a very fact-based and subjective call: much like the  
concept of obscenity in U.S. constitutional law, which Justice Potter  
Stewart famously referred to as an “I know it when I see it” standard.

Understandably given the lack of criteria for defining it, the MST  
language has been read broadly by some tribunals, while others have  
given it a narrow construction. Such inconsistency reinforces the  
argument that these unelected international investment tribunals are  
making judgments that are more political or ideological rather than  
judicial in character.

Tribunal decisions on the application of MST, expropriation and other  
vague concepts are likely to depend in part on the personal values and  
instincts of the arbitrators. Most tribunal arbitrators are from the  
U.S. or Western Europe and have a background in representing business.  
All arbitrators are selected on an ad hoc basis to sit on a particular  
tribunal, most of which consider suits against developing countries  
like Peru.  Once they complete their tribunal work on one case,  
arbitrators may very likely return to representing their business  
clients, even as a corporate plaintiff’s lawyer in another  
international investment case.

It goes without saying that Peru’s lawyers, therefore, will find it  
difficult to assess the legal risk of an adverse judgment in the Renco  
case, and Peru’s finance ministry and bondholders will find it hard to  
assess the financial risk of an $800 million hit to the public  
budget.  Again, such legal and financial uncertainty is an incentive  
for Peru to settle with Renco, and even to relax its environmental and  
public health enforcement actions at La Oroya.

Another concern, which is more immediate than a budget-busting damage  
award, is Renco’s relatively novel argument that the tribunal has  
authority to interfere with the lawsuits brought in the United States  
on behalf of the children of La Oroya. Renco wants the tribunal to in  
effect issue an injunction requiring the Republic of Peru to take  
steps to exonerate Renco from liability, under U.S. law in a U.S.  
court. Nowhere in the text of the investment chapter of the U.S.-Peru  
trade agreement is there language that invests international  
investment tribunals with the power to compel a sovereign democratic  
government to make public policy decisions in this way, or for that  
matter to interfere in U.S. court proceedings in this way.

To make matters worse, Renco has already succeeded in interfering with  
the Missouri lawsuits brought in the name of children from La Oroya.   
On two occasions, Renco sought to move the Missouri lawsuits to the  
more corporate-friendly venue of federal court, but was twice denied.  
After suing Peru under the FTA, Renco again sought to move the suits  
to federal court and succeeded.  Under U.S. law, the introduction of  
international questions of this sort can justify removing a case from  
state court to federal court.  Arguably, one of Renco’s motivations  
for filing its investment claim under the U.S.-Peru FTA may have been  
to remove the Missouri suits to federal court.

The big chill or a battle to the end

Todd Tucker, the research director at Global Trade Watch, points out  
two implications from the Renco v Peru case. First, the mere threat of  
such international investment litigation has a chilling effect.  It  
can effectively put pressure on governments to weaken environmental  
and health policies. The government of Peru might ease up on its plans  
for a La Oroya clean up. Second, corporations are increasingly seeking  
to evade justice in domestic courts by manipulating the international  
investor-state arbitration process.  Renco was no doubt motivated to  
file its investment suit against Peru in part to evade the civil  
justice system in Missouri.

The consequences of the Renco case, however, could be much more  
serious, especially given the events on Friday, April 13 in Peruvian  
bankruptcy proceedings.  Doe Run Peru is now in danger of being forced  
into liquidation. Ira Rennert could lose ownership of the La Oroya  
smelting complex, and if it comes to that, his lawyers will probably  
characterize it as a direct nationalization of his property.  This  
could turn into a bitter-end battle: to force Peru to capitulate by  
accepting a one-sided settlement or by leaving it to the tribunal to  
decide whether to award as much as $800 million in damages.  And what  
then will become of the children of La Oroya.


  
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