On April 7th, the Doe Run Company, a U.S. mining and smelting corporation, initiated an international arbitration against Peru, claiming that Peru treated it unfairly by imposing and enforcing environmental remediation requirements at the company’s notoriously polluting smelting facility at La Oroya, which has been described as one of the most polluted places on Earth. This appears to be the latest in a series of moves by extractive companies to retaliate against countries that dare to apply environmental and other public interest regulations, in the guise of upholding free trade agreements.

The Doe Run saga is complex, but the two-sentence backstory is that after taking over a heavily polluted facility from a state-owned entity, the company defaulted on its environmental obligations (called “PAMA” in Peru) repeatedly over the course of twelve years of operation, requiring the Peruvian government to grant extensions and, eventually, impose itself as a preferred creditor to ensure environmental performance. In 2009, the company decided to close the smelter, citing financial problems related to the global recession and Peru’s environmenal demands, and now faces bankruptcy proceedings in front of a Peruvian regulatory agency.

Railway Station in La Oroya, Peru

Rather than cleaning up its act and paying its creditors, however, Doe Run has struck back by hauling the Peruvian government in front of an arbitral tribunal and claiming that Peru has violated the U.S.-Peru Free Trade Agreement. Among other allegations, the company insists that Peru treated it unfairly and inequitably and devalued its investment by imposing environmental obligations and positioning itself as one the company’s creditors through the PAMA process. Moreover, it now insists that Peru is required to assume liability for all environmental pollution at La Oroya, including lawsuits brought by Peruvian children against Doe Run in a state court in Missouri.

The most amazing thing about this case is that it is Peru that is caught up in this arbitration. Indigenous peoples and environmental defenders have been uniformly frustrated by the Peruvian government’s disregard for their rights and its own laws in the headlong rush to develop the country’s mineral and hydrocarbon resources. In the case of La Oroya, the Peruvian government bent over backwards – repeatedly – to accommodate the company. Despite tremendous opposition from civil society, the government granted a total of over five years of extensions for the fulfillment of the PAMA. And in 2007, the Prime Minister wrote a letter to the Missouri court, asking the court to dismiss the claims against Doe Run in order to avoid “setting a disturbing precedent for investors in both countries, which would undermine legal security.” (The court declined to do so.) Doe Run therefore is turning on its greatest ally as it tries to salvage its investment without complying with many of the conditions under which that investment was made in the first place.

There are also two interesting things to note about Doe Run’s arbitration claims. First, as many of us anticipated, the tactic recently employed by Chevron in its arbitration against Ecuador, where it has asked the tribunal to interfere in private litigation and exonerate the company from personal liability, has proven attractive to other companies as well. Doe Run takes a page from Chevron’s playbook in asking the arbitral tribunal to compel Peru to assume liability for the company’s environmental negligence in ongoing litigation in U.S. and Peruvian courts. Second, its claim that the Peruvian government’s position as a preferred creditor in the bankruptcy proceedings violates the Free Trade Agreement is a new, troubling innovation. When it granted the PAMA extension, Peru required Doe Run to commit to paying the money needed to meet its environmental obligations before paying other creditors. If the decision to enforce such an arrangement constitutes expropriation, as Doe Run claims, then host countries have no way to secure environmental compliance in cases of massive corporate default like this one.

In suing Peru, its erstwhile ally, Doe Run seeks to have it every way but the right way. By blocking the government from imposing regulations, enforcing preexisting regulations, and allowing private citizens to vindicate their own claims, the company would close off every avenue of environmental accountability and leave others to clean up – or, more likely, live with – its own mess.

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