Rhetoric vs. Reality: Investing as if Human Rights Mattered

A Presentation by
Joan Kuyek, D.S.W, MiningWatch Canada
to the Think Tank of the Board of Directors of Rights and Democracy
"International Investment and Human Rights: Political and Legal Issues"
June 11, 2003, Ottawa, Ontario

I am honoured to be here today and to share with you a non-governmental organisation perspective on Canadian policy about investment and human rights. Our particular NGO perspective — for indeed there are many including that of the Chamber of Commerce — means that we work with and talk to the people every day who are losing loved ones, land and livelihoods because of the abuse of their human rights.

The amazing thing about the body of International Law that comprises human rights is that it expresses the collective values of most of the world’s peoples. This is a remarkable achievement. What is almost unbelievable however, is that given this collective — and oft reiterated — statement of moral principles, we are so far from seeing them realized. Why?

Any analysis of the history of attempts to enshrine human rights in law and practice, makes it abundantly clear that the basic issue of human rights is one of power. The realization of the collective values of the peoples of the world is blocked at every turn by the strategic manoeuvres of those who desire the accumulation of wealth and power in the hands of a few.

When the difference in the two agendas are that great, then the basic strategy to achieve the collective project has to be to provide the powerless — the victims of human rights abuses — with the tools to advocate for themselves effectively.

In my short time and from my small window on reality, I will try to show how this struggle over the human agenda is played out in our country — in Canada.

On May 15, 2001, NGOs and unions (under the auspices of CCIC, the Canadian Council for International Cooperation) met with the Department of Foreign Affairs and International Trade (DFAIT) and other departments to discuss corporate responsibility. The paper presented at this meeting made some key points which bear repeating here:

“Canada signs international agreements on human rights and the environment but they are not translated into effective legal mechanisms for compliance. Trade agreements, on the other hand, are made binding Canadian law as a part of ratification. [1]

The government assists companies and their investors to secure market access through trade negotiations, and by “fronting” companies in deals with governments that wanted to deal on a government to government basis. It promises and provides subsidies, export credits, insurance, loans and equity to exporters and their customers, it provides training, research and development and infrastructure support for private sector projects overseas. It provides special tax treatment. It advocates for Canadian business interests at the World Trade Organisation (WTO) and other trade organizations. It presents the Canadian business case at international financial institutions and at the OECD (Organisation for Economic Cooperation and Development). These policy initiatives, programs and subsidies are provided through a number of government departments and agencies: Agriculture Canada, the Export Development Corporation, Canadian Commercial Corporation, CIDA (the Canadian International Development Agency), Foreign Affairs, International Trade, Industry Canada, Natural Resources Canada, the National Research Council and so on. We do a great deal to prop up corporate power and control. [2]

On the other hand, the rights-based agenda is treated as an “externality”, subject largely to voluntary initiatives, and couched in unenforceable — if motivational — language. The difference between the language and form of trade agreements and that of human rights and environmental agreements is stunning. The latter generally have no monitoring or enforcement mechanisms, and no ability for wronged individuals or groups to sue. [3]

The NGO group that met in May 2001, put forward a number of places where government could introduce regulation and policy to empower victims through law and regulation.

  • Change the Criminal Code to make investors and corporations accountable for the consequences of their decisions
  • Change the Canadian Corporations Business Act and other acts incorporating companies in Canada to enable the dissolution of companies that repeatedly violated laws
  • Develop legislation to hold Canadian host companies responsible for the human rights violations of their companies in other countries in the civil courts
  • Amend the Corruption of Foreign Officials Act to enable cases to be brought for corruption that occurs outside of Canada
  • Eliminate tax subsidies, exemptions and incentives for operations that involve complicity in abuse of international human rights agreements
  • Use the Export and Import Permits Act to regulate the export of equipment to controversial Canadian projects
  • Improve the sanctions law under the Special Emergency Measures Act (SEMA) to allow action in human rights abuses and to include investment
  • Tie government procurement to a company (and its subsidiaries) human rights record
  • Develop binding and enforceable human rights and environmental assessment and screens for Export Development Canada (with proper disclosure)
  • Place Export Development Canada (EDC) under the Canadian Environmental Assessment Act (CEAA)
  • Reframe Section 32 of the Access to Information Act to limit the “commercial confidentiality” provisions and to protect non- commercial intellectual property, and make Section 32 decisions subject to judicial review.
  • Provide for changes to Securities Law to require disclosure of human rights and environmental effects of projects to be included in the annual Reporting Requirements of companies, and have them subject to the report of a Qualified Person, similar to the provisions that protect investors under the Ontario Securities Commission's NI 43-101.
  • Change the role of our government departments and agencies to advocates for human rights, sustainable development and the environment before the interests of Canadian businesses
  • Provide resources for the “victims” of human rights abuses to advocate for their rights and for policies and programs that support them.

I am the National Coordinator of a coalition of 17 organizations that have asked us to monitor the behaviour of Canadian mining companies internationally, and to address those policies which encourage irresponsible practices and dis-empower the victims of these practices. I would like to offer some concrete examples from our experience that illustrate the primacy of an investment agenda over concerns for human rights and underscore the necessity to make these change.

Mining is a large part of Canadian investment abroad.

  • From 1992 to 2001, Canadian investment abroad in natural resources rose threefold, from $27.8 billion to over $86 billion. By 2001, mining was 12% of Canada’s total investment.
  • In 2002, 56% of the world’s mining companies (out of 724) were Canadian
  • 54.5% of all equity financing of global mineral exploration and development was Canadian [4]

The Strategic Vision 2001-2006 of Natural Resources Canada states:

“Canada must remain a strong and active player on the international scene – helping protect Canadian investment and trade, helping ensure that Canadian companies are treated fairly and equitably in other countries, identifying international business opportunities for Canadian firms, and helping share Canadian experience, skills and values in order to enhance industry practices worldwide in support of sustainable development.” [5]

What this means in the countries and to the people where Canada “plays” can be devastating. I want to present three cases to you today that illustrate the relationship between Canadian mining investment and human rights.

1) Burma.

I do not think it is necessary to convince this audience of the serious human rights situation in Burma. Canada is on record as supporting the democratically elected government headed by Daw Aung San Suu Kyi, and deploring the forced labour, lack of freedom of association and persecution of tribal peoples for which the military regime is responsible. A few days ago, on May 30, a motorcade in which Aung San Suu Kyi was riding in Monywa was attacked. She was captured and held incommunicado. When the people of Monywa marched the next day, they were attacked by the military and police. The regime cut telephone lines to Monywa and, on June 1, ordered all universities to close.

Offices of the Nobel Peace laureate’s NLD party have been shut and other opposition members detained. Other party leaders are under house arrest. Exiled opposition figures in Thailand say up to 70 people were killed.

Canada has a shameful record on Burma. Canadian investments and trading relationships with Burma continue to put money in the hands of the ruling junta. [6] The largest foreign investor — providing the regime’s most important source of revenue — is Ivanhoe Mines which has a large copper mine at Monywa. [7] Ivanhoe — owned by mining promoter Robert Freidland — is incorporated in the Yukon. It owns a number of subsidiaries, one of which is also investing in China and Mongolia. [8]

Although the Canadian government — responding to pressure — cancelled the preferential tariff treatment of Burmese imports in 1997, imports from Burma have increased from $9.4 million in 1996 to $16.8 million in 2000. The Special Emergency Measures Act (SEMA) would enable cabinet to impose sanctions if it is of the opinion that “a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis”. However, DFAIT has always taken the position that the “breach” requires a trans-border conflict analogous to the Gulf War, and multinational agreement. The SEMA has to be amended or — at the least re-interpreted — so that it can be invoked [9] where there are human rights or human security concerns.

While the human rights situation in Burma is deteriorating, Ivanhoe Mines is planning a massive expansion of its project at Letpaduang. Not only does Canada not hinder this investment, the Yukon incorporation of the company brings with it enormous benefits for the company owners, who — by the way — do not even have to be Canadians or resident in Canada:

  • protection from stronger US sanctions on investment
  • access to Canadian mining investors and brokers and stock markets
  • the ability to deduct for Canadian tax purposes the royalties and taxes paid to the military regime as a legitimate business expense
  • the ability to transfer Foreign Exploration and Development Exemptions between subsidiaries including their Chinese mining project), and to transfer it on amalgamation or to any number of successor companies.

Although Ivanhoe claims it provides jobs in Monywa, Suu Kyi herself has rejected the possibility that ‘constructive engagement’ with the regime would improve democracy and human rights, and has asked for sanctions on all investment. “No amount of aid or investment will benefit our people,” she insisted; “Profits from business enterprises will merely go towards enriching a small, already very privileged elite.”

The Canadian government has a number of options to help to bring this regime to an end:

  • amend the SEMA to implement full and effective sanctions on investment in Burma. The United States is considering expanding economic sanctions against the military dictatorship of Burma.
  • work with international agencies likes the UN to find a multilateral solution to the problem
  • tie taxation exemptions to human rights and environmental standards
  • introduce environmental and human rights screens for investment.
  • change the Canadian Corporations Act to hold directors accountable for the human rights and environmental damages caused by their companies.

2) Tanzania.

In 1996, Verona Edelstein, the Canadian High Commissioner in Dar Es Salaam, laid out Canada’s interest in Tanzania: “Tanzania’s rich and undeveloped natural resources present lucrative opportunities for Canadian investment and joint ventures. Canadian investments in the mining and energy sectors, if facilitated by a conducive investment environment, could result in $1 billion in investment/joint ventures within a five to seven year time frame.” [10]

Her excellency went to great lengths to secure these opportunities for Canada, as was revealed in an Access to Information request on the Bulyanhulu gold mine, obtained by Probe International in 1997. Not only did she arrange meetings between mining company executives and the Tanzanian government in Canada and in Tanzania; she advocated for the removal of small scale miners who were on the property; she helped arrange for political risk insurance from the Export Development Corporation; and she helped handle the press when allegations were made of human rights abuses at the site.

Bulyanhulu is the richest gold mine in East Africa, and was purchased by Barrick Gold from Sutton Resources (another Canadian company) in 1999. Bulyanhulu is, according to John Carrington, vice-president of Barrick, “proving to be a great acquisition, exceeding our highest expectations. These low cost, high margin ounces will contribute significantly to the bottom line.” [11] By the end of 2002, Barrick said that Bulyanhulu had 11.7 million gold ounces of proven and probable mineral reserves. [12] The Tanzanian subsidiary of this company is called Kahama Mining Corporation Limited (KMCL).

The Tanzanian investment raises what my friends in the United Church used to call “the hermeneutics of suspicion”: who benefits from this investment?

Small scale miners do not. Present from 1975 on and numbering from 20,000 (the figure in Ms. Edelstein’s letters) to 200,000 (the figure quoted by the district Police Commissioner) to 400,000 (the figure in the KMCL Social Impact Assessment prepared for the World Bank), the miners were displaced to make way for the Canadian investment. They received no compensation or resettlement support. About 800 Tanzanians have jobs at Bulyanhulu, although none of them are former artisanal miners. There is a medical clinic, endowed by a former Sutton shareholder, that provides medical care to employees and their families only.

Kahama Mining Corporation (KMCL) itself stated that the artisanal miners in Bulyanhulu, “paid taxes and levies which were used for community development purposes, such as the construction of two classrooms for the Kakola Primary School.”[13] In general, the small scale mining activities over the 1975-1996 period “raised incomes, increased population and stimulated services, such as transportation and shops”. [14] “Before the closure of the small scale mines the average income in the study area was the highest in the Shinyanga region.” [15]

KMCL goes on to say that “after cessation of artisanal mining in Bulyanhulu in August 1996, the income of the majority of people declined significantly, the populations of Kakola and other villages in the Ward of Bugarama decreased, and services either decreased or disappeared…the mine was a source of income to a majority of people, both genuine and ‘illicit’ [16] activities and made life different for many.

The Government of Tanzania does not. The Bulyanhulu Mine is governed by special agreements with the GOT with a 25 year term. The Multilateral Investment Guarantee Agency (MIGA) estimates that the Government will receive “approximately $75 million in taxes, royalties and duties …during the initial 15 years.”

During the period from 1990-1994, the Bulyanhulu artisanal miners produced the bulk of Tanzania’s official gold exports which averaged US$30 million per year [17] .

The Government does not own any shares in the mine, having relinquished a 5% interest in October 1999. The deal negotiated by Barrick includes: [18]

  • a 3% royalty of the net value of contained metals,
  • Corporate income tax of 30% based on profit
  • A depreciation allowance of 100% in year of expenditure for prospecting and development capital expenditures, and an additional depreciation allowance of 15% on the balance of unredeemed development capital expenditures
  • The right to carry forward any losses indefinitely from the deduction of prospecting and development capital
  • 0% customs duty on the import of mining equipment and supplies until the first year of commercial production
  • Relief from value-added tax (VAT) for services for use in mining activities
  • The right to export and sell all mine production
  • The right to retain abroad the proceeds of sale of minerals and loans and to dispose of such sums as the Company sees fit.

EDC and the World Bank (through its Multilateral Investment Guarantee Agency, MIGA) guaranteed a $200 million US 9-year term loan [19] , and provide 99.5% political risk insurance (EDC $173 million US).

Barrick shareholders do. Construction of the $280 million US mine began in the third quarter of 1999, and entered production in 2001. In 2002, its expected annual gold production is 400,000 ounces at an expected total cash cost of $151 US per ounce over a 21 year mine life. Assuming a price of gold over $300 US/ounce, Barrick can anticipate making about $2 billion US over the life of the mine. [20]

Today, throughout Tanzania, small scale miners (and there are over 900,000 of them) are being pushed off their claims, increasing their poverty and desperation. There has yet to be a constitutional court convened to determine their right to the land. The advocates for their rights in the Lawyers Environmental Action Team have been charged with sedition.

The Canadian government has a number of options to prevent this happening in the future:

  • Independent assessment of the relative sustainable development opportunities for small scale and large scale mining as well as the government of Tanzania
  • Effective human rights and environmental screens for EDC investments
  • A shift in the role of the Canadian government to advocacy for human rights, over neo-liberal investment laws
  • Support within Tanzania for an independent international inquiry into the events at Bulyanhulu in 1996
  • Legislation enabling the artisanal miners to sue in the civil courts in Canada

3) Mexico. [21]

The expansion of Canadian mining investment coincided with the adjustments brought about by NAFTA; Chapter Eleven has substantially undermined the position of communities vis-à-vis investors. The budgets of the larger Canadian-based mining companies have grown at an annual compound rate of over 50% between 1992 and 1997. There are projects in more than half the country’s 31 states, with 71 companies active.

The 1992 reform of Article 27 of the Mexican Constitution put an end to agrarian reform, ending the state’s commitment to distribute land to the peasants, and privatised the land, allowing peasants to sell their previously inalienable communal land. Subsequent sales took place with little legal oversight and considerable imbalances of power.

The new Mining Law establishes mining as a “public interest” activity and gives it priority over other uses of the land. It forces peasants to negotiate with mining companies with the threat of expropriation hanging over their heads. The provisions to protect the environment and communities are extremely weak, and public hearings are not part of the EA procedures. Civil society organizations in Mexico are deeply concerned about the long term impacts and imbalance of power to affect them. Meeting with officials of DFAIT last year, they asked for help.

The Canadian government has a number of options to prevent this happening in the future:

  • It should support the creation of a network of mining affected communities in Mexico to educate and advocate for their interests
  • Develop binding and enforceable human rights and environmental assessment and screens for Export Development Canada (with proper disclosure)
  • Place EDC under CEAA
  • Reframe the Access to Information Act
  • Provide for changes to Securities Law to require disclosure of human rights and environmental effects of projects to be included in the annual Reporting Requirements of companies, and have them subject to the report of a Qualified Person, similar to the provisions that protect investors under NI 43-101.
  • Change the role of our government departments and agencies to advocates for human rights, sustainable development and the environment before the interests of Canadian businesses at all international and bi-lateral fora.
  • Change the tax laws to tie them to human rights and environmental considerations

Conclusion

In all these cases and the countless others we see on a weekly basis, the issue is the same: the imbalance of power between ordinary people and their advocates and the relentless expansion of the transnational business agenda. The only effective response is to empower the victims of human rights abuses to advocate for themselves and to hold their abusers accountable. Removing those legal fictions and government supports that protect corporate interests in their home countries will go a long way to levelling the playing field.

[1] Moira Hutchinson. Canadian NGO Policy Views on Corporate Responsibility and Corporate Accountability: an overview paper prepared for an NGO-government meeting, May 2001.

[2] Ted Paterson, “Selling Canadian Values: Encouraging Private Sector Activity in the South”, Canadian Corporations and social Responsibility: Canadian Development Report 1998, ed. by Michelle Hibler and Rowena Beamish, Ottawa; North-South Institute, 1998.

[3] Remi Bachand and Stephanie Rousseau. International Investment and Human Rights: Political and Legal Issues, Rights and Democracy, June 2003.

[4] Presentation by Natural Resources Canada to the World Bank Extractive Industries Review by Dr. Dale Hull, March 2003.

[5] From Natural Resources Canada Strategic Vision for 2001-2006 http://www.nrcan.gc.ca/mms/vision/focus_e.htm

[6] Ivanhoe Mines owns Myanmar Ivanhoe Mines as a joint venture with Myanmar Mining enterprise No.1, which is in turn wholly owned by the government of Myanmar. Capital for the mine came largely from Chinese and Japanese private investors in the form of a loan. Shareholders of Ivanhoe are: Robert Friedland 44.4%, Scudder Kemper (Gold and Precious Metals Fund) 3.9, Tocqueville Asset (Gold fund) 1.4, US Global Investments 0.5, Mackenzie Financial 0.3, and many other small investments. Ivanhoe is presently trying to raise money for development of another mine on the China-Mongolia border. Next year, they plan to go to the public for $11.5 million for an expansion to the Letpadaung deposit in Burma. Analysts and their firms with the ratings on the latest issue of Ivanhoe stock include: Jack Jones, CIBC (sector outperform), Catherine Gignac, Loewen Ondaatje, McCut (speculative buy), Tony Lesiak, HSBC (buy), Glenn Brown, Haywood Securities, (buy), Larry Strauss, GMP (buy),Chad Williams, Westwind Partners (buy), Steven Butler, BMO Nesbitt Burns (market outperform), Graeme Currie, Canaccord Capital Corp. (speculative buy), Art Ettlinger, Yorkton Securities (speculative buy), Simon Shakesheff, JP Morgan (buy). — Information obtained from the Bloomberg Database June 9, 2003.

[7] The Annual Information Return for Ivanhoe Mines filed May 21. 2003 states: “The Monywa Copper Project is located in west central Myanmar, approximately 5 kilometres west of the town of Monywa. The site is approximately 110 kilometres west of Mandalay and 832 kilometres by road north of the capital city of Yangon, and is situated on the west bank of the Chindwin River, near its confluence with Yama Stream. The Monywa Copper Project comprises four mineralized deposits: Sabetaung, Sabetaung South, Kyisintaung, and Letpadaung. The two Sabetaung deposits and Kyisintaung are adjacent to each other and have been developed as the S&K Mine, the first phase of the Monywa Copper Project. The fourth deposit, Letpadaung, is approximately seven kilometres southeast of the S&K Mine site and is to be the subject of the second future development phase of the Monywa Copper Project. The S&K Mine site property covers approximately 3,059 hectares and the Letpadaung deposit covers approximately 3,269 hectares.

“The Monywa Copper Project is a joint venture between IVN’s wholly-owned subsidiary, Ivanhoe Myanmar Holdings Ltd., and Mining Enterprise No. 1 (“ME1”), an entity wholly-owned by the Government of Myanmar. IVN holds a 50% interest in the joint venture, which operates through Myanmar Ivanhoe Copper Company Limited (“JVCo”), a company incorporated under the laws of Myanmar. JVCo operates the S&K Mine, an open-pit mine using heap leach SX-EW technology designed to produce London Metal Exchange (“LME”) Grade A cathode copper. JVCo also plans to develop copper mining operations on the Letpadaung deposit. JVCo pays royalties to the Myanmar Ministry of Mines in respect of cathode copper sold by the Monywa Joint Venture at a rate of 2% of the value of cathode copper sold during the first five years of commercial production. Thereafter, the royalty rate increases to 4% plus an amount equal to 2% of the value of cathode copper sold during the first five years of commercial production, amortized and payable in equal instalments over the following five years. JVCo must pay all such royalties in cash or in kind at the option of the Myanmar Ministry of Mines. JVCo must also pay rent to the Myanmar Ministry of Mines at an annual rate of $500 per square kilometer. The Monywa joint venture is governed by a joint venture agreement which provides that the joint venture will operate on each deposit for twenty years from the date of commencement of commercial production on such deposit. The joint venture may apply for an extension for an additional five-year period if the board of directors of JVCo determines that further production is technically feasible and economically viable, subject to receipt from applicable Myanmar governmental authorities of all necessary approvals to continue operations.”

[8] Ibid.

[9] The SEMA was invoked in Bosnia.

[10] Verona Edelstein 28 August 1996 (document 303654 Access to Information DFAIT).

[11] John Carrington, speech to Goldman Sachs First Annual Investor Forum, May 21, 2001.

[12] Barrick Annual Report 2002

[13] KCML, op cit, p.20.

[14] Ibid, a: E-6.

[15] Ibid, a: E-6.

[16] Ibid, b: 5-1.

[17] Official government statistics.

[18] Speech during a Bulyanhulu Mine tour on February 9, 2001, by Barrick vice-president for Legal and Government Affairs Paul Fortin

[19] IFCWatch, 3 October 2000

[20] In 2002, cash costs of production were$198 an ounce, of which $8 were royalties and production taxes. With 356,319 ounces mined at an average gold price of $310 US/ounce, this is a net of almost $40 million US annually to Barrick (not counting amortization or reclamation costs).

[21] Adriana Estrada. Presentation at “Conference on Canadian Mining Companies in Latin America,” CERLAC, York University May 17, 2002.