Harken v. Costa Rica

By Mark Engler and Nadia Martinez, Grist.org. Posted March 26, 2004.

When most people think of Costa Rica, they don't imagine oil rigs stationed off the pristine beaches. Nor do they envision pit mines cutting into the cloud-forested mountains. But, despite the country's noteworthy conservation efforts, its scenic vistas and extraordinary biodiversity face ongoing threats from extractive industries -- and from international trade deals.

Nearly two years ago, Costa Rican nationals and admirers thought they'd been given reason to rest easy. In May 2002, responding to a large-scale mobilization of the country's environmentalists, President Abel Pacheco announced a moratorium on oil exploration and open-pit mining in Costa Rica. Legislators are currently working to give congressional backing to the executive order and repeal laws that expose the country to extractive industries.

At least one multinational interest isn't happy about the developments, however, and its model of corporate discontent may soon end the prospects of an activist siesta.

Harken Energy, a Texas-based oil company with close ties to U.S. President George W. Bush, had previously obtained rights to search for crude in Costa Rica. Before failing an environmental impact review in February 2002, it had planned to drill offshore. Now Harken is demanding that the Costa Rican government pay upwards of $12 million in reparations for its aborted exploits.

On March 11, Costa Rica announced that it would not accept a proposed out-of-court resolution to the dispute, delivering another blow to the bitter oil interest.

But that's not the last word on the subject. Even as the company contemplates sending the case back into international courts, the Bush administration is brokering a treaty that threatens to make the Harken suit into something more than an obscure legal grudge match. That treaty is the Central American Free Trade Agreement.

With the U.S. and five Central American countries working to ratify CAFTA, it's not just local environmentalists and Texas oil barons closely watching ongoing developments in the Harken dispute. International observers say the case is shaping up as the latest cautionary tale of how "free trade" agreements give corporations the power to trump local environmental laws.

Let Us Harken Back

In 1994, the Costa Rican legislative assembly passed a hydrocarbons law as part of a series of measures designed to comply with a Structural Adjustment Program sponsored by the World Bank and the International Monetary Fund. The law opened the way for foreign corporations to win concessions on oil exploration. Subsequently, a little-known Louisiana-based company named MKJ Xploration successfully bid to prospect in several blocks on the nation's Caribbean coast. The company later sold its Costa Rican interests to Harken Energy.

Area residents, fishers, indigenous groups, and environmentalists learned of the deal by reading about it in the newspapers. They quickly realized that lack of local consultation was only the first of the plan's many problems. Offshore drilling, they argued, would damage coral reefs and mangrove swamps and threaten endangered sea life. They waged a prolonged battle against the deal, and a national board came to take their side. It ruled that Harken's plan was not permissible under the country's environmental impact laws. Shortly thereafter, in denying Harken's appeal, the board cited more than 50 reasons why the company's impact statement did not make the grade.

Harken was furious. Arguing that it had already invested more than $12 million in the deal, it turned to international investment treaties to sue Costa Rica -- for $57 billion.

That's no misprint. Harken wanted $57 billion, a figure it said represented the total projected profits of the scuttled deal. Costa Rica's annual GDP is around $17 billion, and the government's entire annual budget around $5 billion.

In late September 2003, soon after the World Bank's International Center for the Settlement of Investment Disputes notified the Costa Rican government of Harken's claim against it, Pacheco announced that his country would not submit to international arbitration. He refused to acknowledge any decision made by the bank's body, insisting instead that Costa Rica's national court system was the legitimate venue for the dispute. A few days later, Harken withdrew its claim and pursued plans to reach an out-of-court agreement.

In January of this year, former U.S. Sen. Robert Torricelli (D-N.J.) traveled to San Jose to negotiate on behalf of Harken. At the time, the Costa Rican government appeared grateful to be eliminating the specter of a costly international lawsuit. Environmental groups, however, greeted Torricelli with protests outside the Environment Ministry. They argued that the negotiations were a form of "oil extortion" -- that Harken was punishing the country for enforcing its environmental laws.

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