The country will likely have to pay over $30 million to an American litigation firm because it wanted to protect its environment from harmful seabed mining.
Published October 21, 2024
By Jen Moore, Associate Fellow of the Institute for Policy Studies, Ellen Moore, Making Clean Energy Clean campaign manager at Earthworks, and Carla García Zendejas, Director of the People, Land & Resources Program at the Center for International Environmental Law.
This article was originally published on inequality.org.
Mexico is trying to protect the environment and fishing communities off the country’s northwest coast from the harmful effects of offshore mining. For that, the government will in all likelihood pay a high price.
Last month, an international arbitration tribunal sided with a U.S. corporation, Odyssey Marine Exploration, in a lawsuit against Mexico for denying an environmental permit for seabed mining of phosphate off the coast of Baja California Sur. The tribunal ordered the government to pay the company $37.1 million, plus interest and costs.
Mexican authorities are vowing to fight the ruling and defend their decision to withdraw the permit based on environmental concerns that affected fishing communities, environmental organizations, and public officials have raised repeatedly.
While the tribunal’s full decision has yet to be released, it is clear that the real beneficiary of this case is the company that financed Odyssey’s arbitration, Poplar Falls LLC. Recent reforms to Mexico’s mining law prohibit seabed mining, but the threat of future arbitrations could still influence Mexico’s regulatory decisions and undermine its ability to meet obligations to protect its environment and citizens.
In 2012, Odyssey acquired a majority holding in Oceanic Resources (ExO) and obtained a 50-year, renewable concession for the Don Diego marine phosphate mining project in the Gulf of Ulloa off the coast of Baja California Sur. Projected to cover 91 million hectares, the project would use large vessels to dredge the seabed, uprooting rock, sand, and marine life, for phosphate sand. The remainder of the dredged material would be discharged back into the ocean becoming a source of pollution, sedimentation, and potential radiation, given the presence of radioactive materials such as uranium and thorium.
The Gulf of Ulloa is a rich coastal marine ecosystem. It is a breeding area for gray whales and a home to many endangered species, including loggerhead sea turtles. The proposed project threatens the region’s rich biodiversity, as well as the local fishing economy. Odyssey’s mining concession overlaps completely with fishing concessions belonging to the Puerto Chale cooperative.
“Artisanal fishing is of fundamental importance to our communities in the Gulf of Ulloa,” remarked Tomás Camacho Bareño, president of the Puerto Chale fishing cooperative. “In addition to providing income and food, fishing represents our authentic way of life and the backbone of our social organization.”
The fishing cooperative, numerous environmental organizations, and officials from the State of Baja California Sur provided abundant information to federal environmental agencies to ensure that they had the necessary arguments to deny the company’s environmental permit.
“In the two public meetings held concerning Odyssey’s environmental permit, those of us who live from fishing in the Gulf of Ulloa, journalists, researchers and several NGOs demonstrated on technical, scientific and legal grounds how harmful this project would be for the marine ecosystem,” continued Tomás Camacho Bareño. Their analysis projected that the sedimentation, waste and noise from mining activity on the seafloor “would leave the area lifeless as a result of the environmental impacts, devastating the species that live there, either killing them or causing them to migrate away.”
There is no precedent for the kind of project that Odyssey, a treasure-hunting firm turned marine exploration company, was proposing. In fact, in most countries where this type of project has been proposed, governments have refused permits or declared a moratorium on this type of activity. The Puerto Chale cooperative also attempted to submit an amicus brief to the arbitration tribunal to communicate their concerns about the project and to relay the environmental significance of the Gulf of Ulloa, but the tribunal rejected the legal submission and refused their opportunity to have any say in the process.
Exclusive privileges granted to foreign investors in the North American Free Trade Agreement (NAFTA), which has since been reformed to limit recourse to Investor State Dispute Settlement or ISDS as it is known, and over forty other investment and trade agreements allow corporations to bring claims against Mexico when they believe their interests have been affected. Odyssey brought its claim against Mexico for US$2.36 billion dollars under NAFTA before the renegotiated version of the agreement came into effect in July 2020.
As a company without any mines in operation and only infrequent income from marine services, Odyssey turned to a third-party funder to finance the arbitration. It is unlikely that the company would have otherwise had the millions of dollars needed to pay the exorbitant legal representation fees required to do so. In the end, the private U.S. litigation firm, Poplar Falls LLC, funded Odyssey’s arbitration with over $23 million dollars. Poplar Falls expected to make three times as much as in return on its investment, as well as a percentage of the final award if Odyssey won the case. With the final award reportedly set at $37.1 million plus interest and costs, it seems likely that Poplar Falls LLC will be the only winner.
“It is inconceivable that Mexico should be ordered to pay the company anything. This is clearly another underhanded way for companies to make money. We know that it is not any government official that will have to pay out of their pocket, but rather the Mexican people who will be on the hook to cover the bill with our hard work,” said Camacho Bareño.
Notably, there is no appeal process in this sort of arbitration. And while Mexican authorities have stated that they would pursue an annulment, this type of reversal is extremely rare. Annulment processes are only available on very narrow procedural grounds and do not include a reevaluation of the merits of the case.
Despite the Mexican government’s statement in light of this decision that it “will not allow projects to be prioritized that benefit the few at the cost of the country’s natural resources and sovereignty,” this negative outcome could still weigh on future decisions by government regulators.
Having become the fourth most sued country in the world, it is crucial that Mexican authorities take the lead from other governments who are making a retreat from the international arbitration system that makes such perverse claims possible by working toward eliminating access to such legal provisions for transnational corporations. The need is especially dire, in Mexico and globally, because of cases like this where companies use the system to seek substantial profits from projects that threaten people and the environment.