Argentina: Argentina; Overview Of The Legal Framework For Cross-Border Mining Projects

Fortunately for us all, Mother Nature does not care or respect limitations of man and, therefore ––among many other things–– mineral deposits hold aloof from political disruptions associated with borders between countries. However, this frequently appears as a major challenge for the development of mining projects.

It would be convenient for Latin-American countries to support the development of cross-border mining projects not only because of the potential productive linkages involved ¹, but also because of the contribution that mining development provides to areas geographically outcast where physical infrastructure, services availability and communications improvements are an urgent need ². Additionally, and most important of all, the correct development of cross-border mining projects is a also a demand of sustainable development, since is was acknowledged that the responsible exploitation of minerals is based on the use of appropriate methods that guarantee a reasonable mineral recovery rate ³ which, in the case of cross-border mineral deposits, is practically impossible if the interested parties to the border and project do not provide an adequate legal framework.

Below follows an outline of Argentina’s achievements so far in this subject, especially considering the bi-national integration with Chile and Bolivia and the progresses reached through MERCOSUR.

Following the regional trend, early in the 90`s Argentina moved into a phase of policy making aimed to promote and captivate direct foreign investment for large scale mining ⁴

The most relevant measures in this sense were (i) the enactment of the Mining Investment Law, No. 24,196 ––as amended–– ⁵; (ii) the update of the Mining Code which meant the renewal of the exploration regime, the deregulation of nuclear mining and the inclusion of specific environmental protection measures ––among other measures–– by Federal Laws No. 24,498 and 24,585 ⁶.

In this sense, the particular requirements of cross-border mining were also attended during this process, in particular through the issuance of the Federal Decree No. 815/92 and Resolution of the Mining Secretariat No. 191/93 ⁷ (the "Cross-border Regulations"). This set of regulations were dictated as consequence of the analysis performed by the National Deregulation Technical Committee ⁸ which concluded that there a number of unjustified and obsolete regulations that were preventing the development of mining production and commerce in the border areas where it is most likely to allocate relevant projects considering its particular geographical characteristics ⁹. In this sense, Cross-border Regulations provided that:

1. the concession of mining rights or property under the terms of the Mining Code shall be exempted from any discrimination associated to the nationality (Decree No 815/92, Section 1º); and
2. the exclusion of the mining exploitations and manifestations from the security zones regime applicable to Argentine international borders that provided that in order to develop mining activities in the international border area, special authorizations and requirements should be met (Decree No 815/92, Section 2º);

Therefore, mining concessions in Argentine international border areas are subject to the standard concession regime and, thus, are granted by the corresponding provincial mining authorities.

Argentina shares international borders with Bolivia, Brazil, Chile, Paraguay and Uruguay. All of these countries are members of the Mercado Común del Sur ("MERCOSUR"). Argentina, Brazil, Paraguay and Uruguay are parties to the common market, while Chile and Bolivia are non-party members. ¹⁰

However, due to geographical and geological reasons, the most relevant achievements of cross-border mining integration as from Argentina’s stand point are reached bilaterally with the non-party members of MERCOSUR.

The success of the currently mature mining integration with Chile represents the most important accomplishment of Argentine mining regional integration. Since Chile and Argentina share the Cordillera de los Andes ––one of the most important sources of minerals of the world–– as international border, the bilateral relationship between the two nations went through a large number of political conflicts in the past.

Nowadays, after the conflicts have been solved, the border entails an equally large number of opportunities for the development of mining projects and that is why in 2000 Argentina and Chile signed the Bilateral Mining Development Treaty (the "Mining Treaty"), which currently governs the harmonization of regulations for cross-border mining activities between these countries. ¹¹

The background of the Mining Treaty was given by the "Peace and Friendship Treaty" signed on 1984, the activities of the bilateral committee created by such treaty and the integration efforts done through the Asociación Latinoamercina de Integración (ALADI). Under this organization Argentina and Chile signed the Partial Scope Agreement for Economic Complementation No. 16 and a number of special protocols associated with the development of the mining sector and cross-border projects (i.e.: Special Protocols No. 3; 4; 19 and 22 for the "Pachón" project; and 20 and 23 for the "Pascua-Lama" project). ¹²

The general idea of the Mining Treaty is to allow access, development and protection of all and any activity and service rendered in connection with the "mining business" ¹³ so as to allow investors to participate in integration process. The Mining Treaty declares that the mining activity should be considered among both states of public interest ¹⁴ and that is governed by the "most favoured nation" clause. ¹⁵ For matters not dealt in the treaty, each country shall apply its own regulations.

1. The Structure of the Mining Treaty

The scheme followed by the Mining Treaty is the following:

1. The treaty is applicable in a determined geographical area with a range of 15 to 190 kilometres width in Chile and 20 to 220 kilometres in Argentina all through the international border 5000 kilometres length (the "Cross-border area");¹⁶
2. The relationship between the parties to the Mining Treaty and the mining investors is coordinated by a special Administration Committee;¹⁷
3. The investor interested in the development of a project located in the Cross-border area should request the Administration Committee to conduct and evaluation of the project and then recommend the parties to the Mining Treaty the implementation of a special protocol for the development of the project;¹⁸
4. Such special protocols shall determine its operations area and the procedures applicable for each project. Special protocols will entry into force as from the date of its signature by the parties to the Mining Treaty (the "Special Mining Project Protocols");¹⁹
5. Investment and expenses that the Parties to the Mining Treaty might perform should be borne by the investor interested in the development of the particular mining project;²⁰
6. Controversies between the parties to the Mining Treaty shall be solved directly in the Administration Committee;²¹ controversies between Parties of the treaty and investors of the other party to the treaty (i.e.: Chile and Barrick Gold Argentina branch) shall be governed by the Bilateral Investment Treaty executed by and between Chile and Argentina on August 2, 1991;²²
7. The Mining Treaty can be relinquished in 30 years as from its entry into force; however it will continue to benefit the mining projects working under special protocols until the end of the mining business. ²³

In this sense, in order to reveal its real importance, below follows a chart that summarizes the critical subjects and issues that were harmonized and optimized by the Mining Treaty:

As mentioned, the Mining Treaty applies to each specific cross-border project by means of a Special Mining Project Protocol, executed by the parties to the Mining Treaty for the benefit of such project.

Chile and Argentina have executed four Special Mining Protocols so far: (i) Pachón Project Protocol,³⁸ (ii) Pascua-Lama Project Protocol,³⁹ (iii) Vicuña Project Protocol,⁴⁰ and (iv) Amos-Andrés Project Protocol.⁴¹ The last two of them exclusively provided for the prospecting and exploration activities.

One of the most important issues to be considered in this regard is that each special protocol benefits the project, regardless of the corporations or investors that may temporarily hold interest or develop the project; furthermore, the special mining protocols becomes an additional ––and important–– asset of the project itself.

In general terms, each Special Mining Project Protocol follows the mechanism of the Mining Treaty and adds specific issues associated to the characteristics of each project. For example, the Pascua-Lama Project Protocol specifies (i) an operation area by means of geographic coordinates and identifies the mining properties and rights of the project;⁴² it also provides harmonization regulations regarding (ii) tax and customs matters, (iii) migration matters, (iv) security and sanitary matters, (v) telecommunications matters, (vi) natural resources and easements matters, (vii) labour and social security matters, and (viii) environmental matters.

Additionally, the recently executed Vicuña Project and Amos-Andrés Project protocols brought the interesting difference that its application and effects can be suspended by the parties for a determined period of time if the project requires so and the request of the investors if duly justified.⁴³ Such suspension can be renewed or concluded, however, if the investor does no request either the renewal or the conclusion of the suspension, after a three-month term as from the termination of the suspension period the protocol shall be terminated.

To sum up, although none of the projects benefited by the application of the Mining Treaty have reached production stages, so far the cross-border legal framework between Chile and Argentina is a model of success that shall continue to strengthen the relationship of the two countries. The development of these mining projects ––and others to come–– not so long ago appeared to be an unattainable target and today have turned the south Andes into the main scenario of the future of Latin-American mining.

Bolivia and Argentina share as international border a section of the "Cordillera de los Andes" and mainly the "Puna" which is also an attractive for the mining projects development. Therefore, the bilateral relationship between Argentina and Bolivia, as regards the development of cross-border mining projects will hopefully repeat Chile’s experience.

Early on 2000, Bolivia and Argentina signed an Memoradum of Understanding ("MOU") of mining matters which was a compromise start the negotiations of a treaty of the same characteristics of the one executed with Chile, that is to say, defined by a geographical area, using special protocols for each particular project and dealing with key matters that ought to be harmonized such as tax, customs, environmental, labour, health and controversies matters. In this sense, both countries agreed to create a bi-national committee under the ALADI to develop the integration process.⁴⁴

The first meeting of the bilateral committee was held early on 2003. During such meeting the parties decided to conduct joint mining investigations of the border area, the draft of the agreement was discussed, and the bases of a future treaty were established under the same ideas of the abovementioned MOU including further harmonization issues such as migration, investment, water resources, hydrothermal and geothermic resources, and academic and scientific matters. Also, the idea of "investor- pays" was included when discussing the burden of administrative and logistics expenses.⁴⁵

However, the last formal achievement in this sense was another MOU that followed the committee meeting by means of which both countries guaranteed the interest in the development of a final agreement which is still pending. ⁴⁶

The political disruptions in Bolivia prior to the presidential elections during 2004/2005 and the measures adopted by the elected president Mr. Evo Morales thereof, caused integration negotiations to freeze. In fact, it is reasonable to say that natural resources activity in Bolivia became unpredictable, since the exploitation of hydrocarbons was expropriated by the government⁴⁷ and the mining industry was first jeopardized,⁴⁸ then spared ⁴⁹ and now is being threatened again by means of confiscatory taxes. ⁵⁰

Considering Bolivia’s mining tradition there is no doubt that the activity will go on. However, under the current scenario, it is likely that investment will retreat for a while and therefore regional agreements for the development of cross-border mining projects ––that basically demand legal and political stability–– will also have to wait for the right time to be negotiated. ⁵¹

The Latin-American southern cone took its first steps into the current regional integration in 1986, when Brazil and Argentina started a regional commercial process that lead to the signature of several special protocols that were ratified in 1989. ⁵² Early in the 90´s these countries signed the "Treaty of Asunción" creating the MERCOSUR and aiming to reach an integrated customs duties policy. ⁵³ Before that in 1996, Bolivia and Chile joined MERCOSUR as non-parties members

First of all, it is worth to point out that from the mining standpoint, Argentina’s international borders with MERCOSUR Parties are not as relevant as the ones shared with Chile and Bolivia, basically because such borders are mostly defined by rivers and submarine mining has not achieved a significant stage of development in Latin-America. ⁵⁴ Moreover, until June 2005, the mining affairs in MERCOSUR were discussed in the frame of the Subgroup No. 9 of the Common Market Group which also handled the energy affairs of MERCOSUR as its priority.

For such reasons, although the regional mining integration has been part of the agenda of MERCOSUR Parties, there are still few relevant achievements in the regulation of cross-border mining projects from the Argentine standpoint.

The most important accomplishments that can be pointed out are:

1. the activities of the recently created Subgroup of Mining Affairs No. 15 (special division of the Common Market Group which is the body that exercises the executive functions within MERCOSUR) ⁵⁵ which are currently focused on: (a) Creating a mining database that gathers the information of active or potential mining projects to be developed; (b) the development of geological, hydrological and mineral resources cartography to support mining projects; (c) promoting bi-lateral agreements for the analysis of the mining potential on international border areas; (d) promoting projects based on sustainable development principles; ⁵⁶ and;
2. the MOUs signed by and between the Ministries of Mining of Brazil and Argentina on (a) March 2004 and (b) January 2006. By means of these documents the ministries intend to create the basis of a future mining treaty and agreed to improve: 1) the mining trade balance, 2) the exchange of technology, 3) professional training, 4) the evaluation of geological resources and 5) the development of transportation logistics. ⁵⁷

It is clear that MERCOSUR Parties are in debt with the development of cross-border mining integration. However it should be considered that MERCOSUR has gone through two periods, the first one focused integration as a political tool to consolidate the regional transformation from military regimes to democracies (1985-1991). The second period was mainly governed by economic interests and soon revealed the conflicts derived from the asymmetries existing between the economies of the parties ––a large Brazil, next to a middle size Argentina and the small sized Paraguay and Uruguay–– which caused uncertainty in the future of the integration (1991-2001). ⁵⁸

Nowadays, we might say that following the tendency originated in the socialist profile of the presidents elected in most Latin American countries, MERCOSUR is entering into a third period where the regional integration pursued might progress again. In this new era, the mining sector deserves a leading role and Argentina should seek further development of cross-border harmonized legal frameworks to continue to grow into a mining nation.

Finally, considering the tension created around the construction of pulp mills on the Uruguayan shores of the Rio Uruguay, the bilateral relationships of Argentina and Uruguay have come to a standstill as regards the exploitation of common natural resources. The review of this conflict exceeds the purpose of this paper, however it is important to point out that both countries have decided to mutually raise this matter to both the World Court of the Hague and the MERCOSUR to solve the controversy. ⁵⁹

It is reasonable to say that during the present and last decade, Argentina has conducted important efforts to improve the regional integration to support cross-border mining projects; and achieved relevant results in the bilateral relationships with Chile and Bolivia.

However, there remains much to be done, especially as regards MERCOSUR Parties. Another issue that should be included in the regional agenda is the review and eventually harmonization of the regulations regarding natural reserve areas. The conflict caused by the current legal asymmetries between Latin American countries has already been acknowledged at the Mines Ministries of Americas forum (CAMMA). ⁶⁰ This issue has a particular relevance in the case of Argentina since there is an important number of natural reserve areas placed in or next to international borders. These natural reserve areas have different standings (i.e.: created by national, provincial or municipal regulations) and are governed by different regulations. This situation creates a quite confusing spider web around the activities allowed and forbidden within such areas. In this cases, prior to any investment, legal due diligence is a must.

Considering that Argentina is a country that is currently committed to develop the mining activity on the basis of the sustainable development principles, the regional integration processes to encourage mining investment in general, and the cross-border projects in particular, more efforts should be done to continue the path initiated with Chile. Integration is a prior requirement to attain economic development and seduce foreign capital investors.

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