Global Policy Forum

By Pascale Bonnefoy

A Santiago court has agreed to hear an unprecedented lawsuit filed by a dozen citizens against 11 foreign mining companies accused of causing "moral harm" and "damage to the patrimony" of Chile. The US$31.9 billion suit on behalf of the state was filed on July 11, the 30th anniversary of the nationalization of the copper industry in 1972 by then-President Salvador Allende (1970-73).

The plaintiffs — a group of professionals represented by economist José Alcayaga Olivares and lawyer Pedro Foncea Navarro — argue that private mining companies, particularly foreign-owned ones, have harmed Chileans by creating an oversupply of 2 million tons of copper on the world market since 1990. According to the suit, the oversupply caused a sharp drop in international prices — and in national copper revenues. In 1989, the price of copper stood at $1,231 a ton; by last year, it had fallen to $84.40.

Chile is home to 37 percent of the world's copper reserves and accounts for 35.4 percent of international production, putting it in first place. After the industry was nationalized, the government retained majority control over production through the National Copper Corporation (CODELCO). This continued under the dictatorship of Gen. Augusto Pinochet (1973-90), when copper represented about 25 percent of government revenue. At the end of the military regime, the government controlled 88 percent of the country's copper production. That figure has now dropped to 30 percent.

Under the current coalition government, the Concertación Democrática, copper represents only 1.8 percent of national revenues, even though production has increased. In 1989, Chile produced 1.6 million tons of fine copper, contributing $2.2 billion to the national coffers. Production in 2001 stood at 4.7 million tons, three times the 1989 rate, but it represented revenues of only $400 million for the government.

The lawsuit accepted by the 7th Civil Court of Santiago demands that the mining companies pay the state $15.9 billion in damages to "national patrimony." That represents "the amount that the Chilean government and people have failed to receive because of the imprudent and negligent manner in which the defendant companies have caused an oversupply of copper, which has resulted in a decrease in prices and the income that this mineral contributes to the nation," according to the suit.

"These companies have been negligent and irresponsible in allowing the price of copper to fall to such an extreme low. At worst, it was done with the intention of exporting copper from Chile practically for free," Foncea said.

The suit also seeks $16 billion in damages for "moral harm" to the country, arguing that the decrease in government revenue has reduced spending on social programs. The plaintiffs have been joined by groups of students, unions, teachers, unemployed Chileans, geologists and mining engineers who have been affected by the slump in the sector.

At the 1989 level, per-ton revenues from copper would be equivalent to 21.8 minimum retiree pensions; at last year's prices, the income from one ton of copper would barely pay two-thirds of a pension, the plaintiffs say. They also claim that the companies have transferred their profits to subsidiaries outside Chile in order to declare losses in Chile and avoid paying taxes.

Such maneuvering, the plaintiffs say, violates tax laws and the Chilean Constitution. "Of the 47 foreign mining companies operating in Chile, only three have made small profits. The rest show losses and, as a result, do not pay taxes. They transfer their profits by selling their production at below-market prices to subsidiary companies in tax havens like the Bahamas and Bermuda," said Christian democrat Sen. Jorge Lavandero, who advocates returning majority control of copper production to the government.

Despite the Chilean government's implied failure to oversee foreign mining interests, the lawsuit is not directed at the state. "The government will have to assume its responsibility and CODELCO should eventually join the suit. This is a serious situation, and when the lid comes off, it's going to be frightening," Foncea said.

According to the lawyer, the plaintiffs have documents proving that the companies transferred profits to evade taxes. "The proof is based on reports from the companies themselves. They're absolutely undeniable," he said.

In an article in the bulletin El Tren Ciudadano, Lavandero attributed the situation to a policy of the coalition government — to which his party belongs — of "favoring foreign investment in mining, limiting CODELCO's expansion and even privatizing parts of it ... and selling foreign companies more than 300,000 hectares of its mining concessions, without CODELCO having received a dollar for them."

Foncea says the successive Concertación Democrática governments have favored foreign companies. "When these companies start to operate in a country, they weave a spider web that catches political authorities, communications media and other groups," he said.

Since 1958, a portion of CODELCO's copper revenues has been earmarked for the armed forces. The minimum is currently set at $210 million, about 10 percent of this year's $2.3 billion military budget. If revenues from copper sales fall below this amount, the public treasury must make up the difference.

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