The Mexican government’s moves against Vulcan has drawn accusations of “anti-business attitude[s] and rhetoric” from both sides of the US Senate.
Mexico’s President Andrés Manuel López Obrador (otherwise known as AMLO) is causing yet more hand-wringing and consternation in the US business and lobbying community. On Tuesday he announced plans to file an international lawsuit against Alabama-based Vulcan Materials and its subsidiary in Mexico, Sac-Tun (formerly known as Calica), for the grave environmental damage its extraction of limestone has caused to the water quality and subsoil conditions.
Aerial photos give some idea of the scale of the damage. Vulcan and Sac-Tun have created a vast wasteland in the middle of verdant rainforest less than a kilometer from the Caribbean coastline. Even the business-friendly Mexican daily El Economista called it a “sinkhole of industrial proportions.”
“Imagine: they took away material to build highways in the United States, creating an ecological catastrophe and we are going to present an international complaint,” stated AMLO in his press conference from the National Palace, adding that the environmental damage has already affected the region’s famous cenotes and underground rivers. AMLO said he will take the case to national and international courts.
Vulcan is the largest construction materials producer in the United States. It has operations overseas, including underwater quarrying operations at its Sac-Tun site in Quintana Roo. Once excavated, the limestone is shipped to the US from a purpose-built port. Headquartered in Birmingham, Alabama, Vulcan Materials has been operating on Mexico’s Mayan Riviera since 1986, when it bought more than 4,000 hectares of coastal rainforest just 10 kilometers south of Playa del Carmen.
The company received mining licenses from a succession of Mexican governments. But things began to change in 2018, when Mexican authorities refused to allow quarrying at some of the sites due to the environmental damage being caused. In response, the company filed for an arbitration panel under the old North American Free Trade Agreement (NAFTA), in which it is seeking damages of around $1.5 billion from the Mexican government.
“No More Impunity”
AMLO has emphasized his government will not issue permits that harm the Mexican population and its resources. Therefore, if Vulcan refuses to withdraw its lawsuit, the government will seek the support of influential multilateral institutions such as the United Nations. “Caring for the environment comes before financial gains,” AMLO said in February:
“If they say no and want to continue exploiting [resources] without authorization or continue suing the country for taking care of its environment, we are going to take our case to the UN. This is not an idle threat or a warning, we are simply stating that impunity is no longer allowed.”
As I reported in February, this is part of a broader trend of growing resource nationalism in Latin America that has global mining companies and their investors extremely concerned, especially as interest in the region’s unparalleled lithium deposits rises. Governments of lithium-rich countries in the region, including Mexico, want to make sure they (and hopefully by extension their voters) benefit from the lithium rush.
To that end, the AMLO government passed a new mining bill in April whose main goal is to ensure that lithium exploration, exploitation and use will be exclusively reserved for the Mexican state under a federal authority.
“We are going to protect Mexico’s lithium, the lithium of our generation and future generations, our children and grandchildren,” AMLO said at the time.
As many of AMLO’s opponents were desperate to point out, all of Mexico’s lithium stores already belong to the Mexican State — at least in theory. Article 27 of Mexico’s constitution holds that “the direct ownership of all natural resources of the continental shelf and the submarine shelf of the islands” is vested in the nation. But in practice, just about every government since NAFTA has awarded exceptionally generous concessions to foreign mining companies that have left behind them a vast trail of environmental devastation, human rights violations (including union busting) and corrupt practices.
Mexico’s new mining law has sparked fears that other countries in the region may do something similar. As the UK-based global risk and strategic consulting firm Verisk Maplecroft noted in August 2021, more and more countries are taking greater control of the revenues generated by the minerals and hydrocarbons produced within their borders:
Mexico stands out as seeing the largest increase in risk out of the 198 countries assessed by the RNI, driven by AMLO’s nationalist agenda that wields community and environmental arguments as justification for greater state involvement in the extractive sector. Worryingly for miners and energy firms, its performance is indicative of a wider regional trend. South America’s three largest economies, Brazil, Argentina and Colombia are also experiencing substantial negative shifts in the index.
Since coming to power in late 2018 AMLO’s government has rejected a permit for Odyssey Marine Exploration’s Don Diego phosphates seabed mining project in Baja California Sur due to concerns about the local wildlife, which has also led to an arbitration claim. It has said it will block Invecture Group’s Los Cardones open-pit gold project due to its inherent environmental risks. In fact, the AMLO Government has imposed a de facto ban on open-pit mining.
Mexican Shakedown
In February this year, the AMLO government unveiled plans to negotiate a resolution to its standoff with Vulcan. In exchange for Vulcan’s withdrawing of the lawsuit, the company would receive material resources and help from the government to convert the limestone quarry into a natural park or tourism attraction. It was a deal that Vulcan could hardly accept, given it has zero expertise or interest in tourism. But the alternative was to lose all rights over the land.
AMLO dispatched Mexico’s Ambassador to the US, Esteban Moctezuma, to Birmingham, Alabama, to try to twist the company’s arm. The message was simple: the mine’s activities must be terminated as they are damaging the region’s ecosystem. At the same time the AMLO government insisted the concession was not being revoked; it just had to be used for other, less environmentally harmful purposes.
Granted, mass tourism is hardly good for the environment but it is better than excavating for limestone meters under the water table. Also, as luck would have it, a new tourism development on the site would fit perfectly with AMLO’s signature infrastructure project, the Mayan Train, a 948-mile intercity railway that will traverse the Yucatán Peninsula, which itself has come under criticism for the environmental destruction it is causing.
According to Moctezuma, the company’s senior management agreed to the proposal. But in early May AMLO flew over the area and saw with his own eyes that the company had secretly continued its mining operations. His response was to instruct Mexico’s Department of Environment and Natural Resources (SEMARNAT) to proceed immediately with legal action against the company for violating the law.
Days later SEMARNAT presented Vulvan Materials with a judicial order to immediately cease all extraction and quarrying activities at its only remaining active deposit. Such drastic action was necessary, it said, because Vulcan had been excavating below the water table, putting in danger both water quality and subsoil conditions. The company responded by insisting that it has all “the necessary permits to operate and intends to vigorously pursue all lawful avenues available to it in order to protect its rights and resume normal operations.”
According to ABC News, the timing of the move raises some important questions:
López Obrador wants the water-filled quarry to be used as a theme park to rival the nearby XCaret park. He also wants Vulcan to build a cruise ship dock at a freight terminal it operates on the coast. He has pressured the Alabama-based aggregates company to sell the property to the government, or open a water park itself.
Vulcan issued a statement Thursday saying it “strongly believes that this action by the Mexican government is illegal.”
“Anti-business Attitude and Rhetoric”
The AMLO Government’s latest move is unlikely to ease Mexico’s already strained relations with its largest trade partner. Just last week, AMLO embarrassed the Biden Administration by refusing to attend the US-hosted Summit of Americas after Washington had declined to invite governments it didn’t like (Cuba, Venezuela and Nicaragua). In his stead AMLO sent his foreign minister, Manuel Ebrard.
The US Ambassador to Mexico, Ken Salazar said on Tuesday that AMLO’s absence does not affect US-Mexican relations. But some lawmakers were in a less forgiving mood. U.S. Secretary of State Anthony Blinken took a leaf out of the EU’s book and condemned violence against Mexican journalists on June 7, just a day after AMLO confirmed he would not travel to Los Angeles. The U.S. Trade Representative, Katherine Tai, also issued a complaint against Mexico regarding labor rights two days afterwards.
In late May, a group of US Senators, mostly from the Republican Party, sent a letter to Biden conveying their concern about what they called “anti-business rhetoric” by President Andrés Manuel López Obrador. The legislators bewailed that the Mexican government has carried out a series of “attacks and violations” of the Trade Agreement between Mexico, the United States, and Canada (T-MEC), including the suspension of Vulcan Materials’ concession in Playa del Carmen.
“Vulcan Materials Company is not the only US enterprise to be harassed by the Mexican government, and we express our concern about President López Obrador’s anti-business attitude and rhetoric. There have been a number of surprising cases, particularly in energy where multiple US-owned facilities have been forced to close…
“We write to you urging you to prioritize and address the recent aggression by President Andrés Manuel López Obrador and his administration towards US companies with investments and operations in Mexico…
“If these violations are allowed to continue, they will undermine mutually beneficial economic cooperation between our nations and encourage companies to seek more predictable and suitable markets elsewhere. Therefore, we respectfully request that you take immediate action with respect to the Government of Mexico to reverse the harmful measures it has already taken and to prevent further damage to the economic relationship between the United States and Mexico.”
The problem for these lawmakers is that AMLO, now more than halfway through his six-year term, still commands a high level of public support. Together with India’s Narendra Modi, he is the most popular government leader among 22 countries tracked by the polling firm Morning Consult, with a 68% approval rating. AMLO’s party, Morena, continues to consolidate power as opposition parties continue to flounder. Just two weeks ago, Morena seized four out of six governorships from opposition parties in local elections, giving Morena control of 22 of Mexico’s 32 states, just two years before the next presidential elections.
7 comments
Comments are closed.
I always find it remarkable how businesses regard contracts as sacred documents but will not hesitate to break them themselves. More to the point, how is it that a corporation like this can extract limestone for use in a foreign country but will knowingly wreck the water table in the process? Who is going to pay for that? If you tried to take the local corporation to court, you would probably find that it will declare itself bankrupt but long after the profits had gone overseas. Here I think that the Pottery Barn rule applies – you break it, you own it. If Vulcan is trying to play it smart with a NAFTA lawsuit, then Mexico should send them a bill to repair all the damage that they have done. But when that corporation continued illegal mining activities after agreeing to stop, they should have sent the police to arrest them and block all access to that site. But at least in a court of law Mexico can now demonstrate bad faith negotiations by Vulcan now. If this all is part of a trend, it is going to get interesting now. And it is not only US corporations that do this sort of stuff so this has international repercussions as well.
Mexico’s problem is its basically trying to do, in US terms, a “regulatory taking” without paying the required compensation. The basic concept of a regulatory taking is that it occurs when government by regulation essentially deprives a property holder of economically reasonable use of a property right. (Even the US formulation is a mess on exactly what goes too far in this area–normal property use regulation is okay, but at some point in regulation there’s just not enough left of a property right for it to be fairly called a property right.)
Unfortunately for Mexico, NAFTA essentially imports the regulatory taking concept. (Article 27 of the Mexican Constitution also prohibits expropriations of property without compensation, but I’m not sure the extent to which covers regulatory takings, as there’s also provision for regulatory schemes in that same Article that could harm the economic value of a property right.)
In light of the above, from a purely business/legal perspective, if Mexico’s main priority actually is the environment (and not some other political consideration), the cleanest solution is to just pay Vulcan its expected net profit from the concessions and revoke the concessions. Mexico could also try to recover some environmental damages, as you propose, but that would make Vulcan probably dig in and also really depends on Mexican law–for example, I would not be surprised if the concessions legally waived some environmental rules, and if so, that’s unfortunately on the Mexican state.
Thanks for explaining how US corps operate with impunity in their global operations. All Mexico has to do is pay the profits that the rapacious firm intended to acquire and it’s all good for the globalist cartel. I will forever admire Trump for killing the TPP. Imagine what the Ukraine situation would look like with the corporate US in control of all pacific rim countries with their star wars council of corporate lawyers…All you have to do to keep us from killing you today is to give us the money we were going to make selling your body. Same deal tomorrow…
Its the best approach not because it’s moral but because it gets Vulcan out of the way.
If Mexico thought it had a real chance of winning an arbitration, it wouldn’t be looking to the UN–there’s not much that body can do, as readers here know. Instead, the Mexican government would issue a statement to the effect that it expects and looks forward to being vindicated before a NAFTA arbitration panel.
That being the case, I think the best option is to buy a clean slate. It will have serious costs in the short run but taking back control of natural resources seems worth it to me in the bigger picture.
Sigh
AMLO’s Tren Maya project—cutting across pristine Yucatan habitat—is an ecological catastrophe.
“The Tren Maya (sometimes also Mayan Train or Maya Train) is a 1,525-kilometre (948 mi) intercity railway in Mexico that will traverse the Yucatán Peninsula; construction began in June 2020 and is scheduled to be completed by late 2023.”
“environmental organisations are staunchly opposed to the project, given the catastrophic environmental impact it will have on an area rich in biodiversity and crucial to the conservation of the Mayan rainforest.
The railway line will pass through the Calakmul Biosphere Reserve, which has the second largest expanse of tropical forests in the Americas, and eight other important nature reserves, such as Sian Ka’an and Yum Balam, both in Quintana Roo.
There are also strong concerns over the damage to archaeological sites and the project’s failure to respect environmental legislation, with environmental impact assessments either not made public or only presented once the works are already underway.”
“Xavier Martínez, operations director at the Mexican Centre for Environmental Law (CEMDA), tells Equal Times that the project’s environmental risks are “absolutely uncertain” because the authorities have failed to present a full assessment. “
Thanks for this piece, important info on the reality of the ISDS-type arbitration stuff as it relates to national sovereignty.
The last para especially is very interesting. Imagine what could be done with a weakened US, a second Morena president term with similar policies as AMLO in Mexico, and Lula back in power in Brasil. Almost dizzying to contemplate the possibilities over the next decade when combined with another Trump term with heavy isolationist/nationalist drives of its own keeping the yankees focused on domestic issues. As an American I am not really looking forward to the continued and expanded domestic breakdown here but as a socialist human I am very happy for what seems to be happening in Latin America on the long term.
Super we share a boat. It’s easy to like and respect AMLO even more so with his firm anti imperialist stance during the summit of the Americas.
Venezuela may well be in a good position for growth, given fuel costs
And Lula is and has been dope