TED Case Studies

Bolivia Gold Mining

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  CASE NUMBER:    84 
  CASE MNEMONIC:  Bolivia
  CASE NAME:      Bolivia Gold Mining
  

A.        IDENTIFICATION

1.        The Issue

     Bolivia, as many countries in Latin America, faces a trade-off
between economic growth and protecting its environment.  The South
American country earns the majority of its foreign exchange from
mining.  Zinc is the main mineral exported, followed by tin, gold,
and silver.  Bolivia has liberalized its mining sector's investment
regulations in an effort to increase its foreign capital.  At the
same time, the U.S. has made mining extremely difficult for its
companies with more stringent rules.  Gold has been an increasingly
important export for Bolivia.  However, U.S. and Bolivian
environmental groups continue to fight mining exploration and
operations, largely because of the devastating effects on the
environment.  Mining has led to soil erosion and the pollution of
freshwater.  Many Bolivian peasants feel torn, as these U.S. and
foreign mining companies are bringing much needed jobs to their
country.

2.        Description

     The public mining sector in Bolivia is suffering from fifty
years of under-investment and inefficient management.  The majority
of the Bolivian Mining Corporation's (COMIBOL) 800 properties are
not active or are experiencing tremendous losses.  Despite lower
world mineral prices and fierce union opposition, COMIBOL is
committed to restructuring their mining plants and increasing
output.  Currently COMIBOL is working with the World Bank in its
efforts to modernize its mining sector and establish joint ventures
with private investors.  U.S. and Canadian gold companies have
increased their mining projects and Bolivia is streamlining its
regulations to encourage their investment (see GEDDES and SMELTER
cases).  Capital can move in and out of the country freely,
inflation has decreased, labor costs are low, and the economy and
political environment are stable.

     Mining is Bolivia's most important economic sector and
accounts for approximately 50 percent of its foreign exchange. 
Despite a 12 percentage decrease in mining exports in 1993, it is
the main source of foreign exchange.  COMIBOL was only able to
export 30 percent of its mineral production, compared with 70
percent in 1986.  However, Bolivia's private mining sector has
continued to grow.  In 1992, investment in Bolivian mines increased
to $200 million from $96 million in 1991.  This increase is due to
the opening of a gold/silver mine in Rami.  A U.S. company, Battle
Mountain, owns 85 percent of the mine.  This mine is expected to
triple Bolivia's gold output in 1993.

     The Bolivian miners' union has strongly opposed foreign
investment.  The unions, led by the Bolivian Federation of Miners
of La Paz, are concerned with labor stability and are fighting
COMIBOL's reforms with strikes and legal measures.  They have been
successful in halting two joint ventures signed with COMIBOL,
claiming the contracts were signed before joint ventures were
legislated into law.  The Bolivian Supreme Court is expected to
come to a decision soon on the ruling.  Private consulting firms
feel these unions are making a grave mistake, as their efforts
might hinder much needed renovation of COMIBOL's inactive mines and
prevent the employment of many Bolivian miners who are out of work. 
Also, private mine operators are required by Bolivian law to
provide housing, health, and education services in the areas they
mine.

     Without joint ventures, COMIBOL will be forced to close the
majority of its mining operations.  It has already laid off 28,000
workers when the tin market plummeted in 1986.  Some mining
analysts feel union leaders oppose the joint ventures because they
fear losing their own power and privileges.  The government is
currently paying laid-off COMIBOL miners a minimum salary, after a
series of violent strikes.

     Unemployed miners have been able to earn a meager living
through cooperatives and about forty percent of these 320
cooperatives are mining gold.  These workers have a rudimentary
knowledge of mining and often only work with picks and shovels. 
There are approximately 45,000 cooperative miners in Bolivia that
produce two to seven tons of gold each year.  However, the working
conditions are often dangerous, as miners must blast veins in
mountains and often encounter mud slides.

     As South American countries, such as Bolivia, seek foreign
capital, the U.S. mining companies have sought new markets with
less stringent rules.  U.S. exploration spending and operations in
Latin America more than doubled in 1992.  Ten percent of the North
American exploration industry is now active in Latin America.

     Houston's Battle Mountain Gold Co. was welcomed into Bolivia
as a source of jobs and tax revenue and even as a protector of the
environment.  It was allowed to move in immediately.  Battle
Mountain has been struggling with environmentalists in the United
States, who opposed their Washington-state gold mine, for 18
months.  U.S. companies also face much better prospects in South
America, where many mineral deposits have yet to be explored. 
Other U.S. gold companies, Amax Gold and American Resource Corp.,
are exploring gold projects in Bolivia (see BRAGOLD and VENGOLD
cases).

     In 1992, a U.S. agency and several European countries
suggested an environmental law for Bolivia that would have ended
most mining projects.  Subsequently, a less severe law was passed. 
Sinvce then, eight Latin American countries have rewritten their
mining laws to encourage foreign investment.  Most laws "include
requirements for environmental impact statements and reclamation of
mined land after mineral reserves are exhausted."  They plan to
make their environmental legislation coincide with the standards of
industrialized countries.  Bolivia is working with the World Bank
to audit state-owned mines to that ensure private investors are not
liable for past pollution.  Latin American mining officials met on
April 15, 1994 to discuss mining and the environment.  They stated
that the influx of U.S. and Canadian gold mining projects are not
a major threat to the environment.  Instead, "wild-cat prospectors"
are causing much more harm.  Through their haphazard use of
mercury, surface soil has been washing away.  

     U.S. gold companies have moved their operations to South
America as a result of fierce environmental opposition in the U.S. 
Environmental groups fighting Battle Mountain's Crown Jewel gold
mine operation in Olympia, Washington are concerned that cyanide
solutions used to process ore cannot be contained safely and may
contaminate water supplies.  They proposed a bill that would extend
the permit period to five years, but it did not pass. 
Environmental groups, such as Washington Wildlife Coalition, are
demanding a moratorium on mining until more stringent laws are
passed.  However, without new legislation mining companies already
face stiff regulations in Washington.  The mining companies must
receive 56 different permits and prepare a 1,000 page environmental
impact statement.  Battle Mountain must employ more workers to
prepare this statement than to work its Washington mine.

     Mining exploration in Bolivia has been detrimental to the
environment and has caused great soil erosion.  Mining extraction
pollutes freshwater through leaching, where damaging metals enter
underground water supplies.  The Bolivian government and its
development institutions have done little to prevent soil erosion,
which has occurred primarily in the Cochabamba and highland regions
of Bolivia.  Much of the soil is no longer fertile.  Laws such as
the Agrarian Reform Law of 1953, which listed resource conservation
as a fundamental objective, has not been adequately enforced.  

     The Bolivian government did not assess the soil erosion until
the late 1980s.  They blamed the problem on the "backwardness" of
peasants.  Many peasants working the land are ignorant of the
environmental impact that gold mining has.  They are not aware of
which techniques are best for the environment and can prevent soil
erosion and deforestation.   The government, however, is unable to
financially support soil conservation programs and relies on the
assistance of NGOs.  Soil erosion harms farm and grazing lands and
increases flooding and desertification. Those that are aware in the
Cochabamba province, the Sole Trade Union Federation of the Peasant
Workers, have written a resolution stating they will no longer
tolerate the exploitation of their natural resources by "oligarchy
and imperialism."

3.        Related Cases

     BRAGOLD case
     VENGOLD case
     GEDDES case
     SMELTER case

(In general, see LATCO, the Latin
American Trade Council of Oregon).

     Keyword Clusters

     (1): Trade Product            = GOLD
     (2): Bio-geography            = TEMP
     (3): Environmental Problem    = HABITat Loss

4.        Draft Author: Angela G. Armstrong

B.        LEGAL Cluster

5.        Discourse and Status: DISagreement and INPROGress

     Bolivia's unions are trying to persuade the government to take
stronger measures against joint ventures with private investors. 
Also, U.S. environmental groups are pushing for even stronger
legislation against mining in the United States.  These U.S.
actions are driving many U.S. mining companies to Bolivia, where
their mining exploration is much more welcomed.

6.        Forum and Scope: Bolivia and UNILATeral

7.        Decision Breadth: 1

8.        Legal Standing: LAW

     The Bolivian government has recently liberalized its laws
concerning foreign investment.  Its private mining sector continues
to grow because of new mining codes that streamline regulations. 
However, the miners' unions continue to fight joint venture
agreements, stating that two joint ventures were formed before the
decree permitting such ventures was legislated into law.  This case
will be decided by the Bolivian Supreme Court.

C.        GEOGRAPHIC Clusters

9.        Geographic Locations

     a.   Geographic Domain:       South America [SAMER]
     b.   Geographic Site:         ANDES
     c.   Geographic Impact:       BOLIVia

     Bolivia's Altiplano plateau and the highlands of Cochabamba

10.       Sub-National Factors: NO

     Only the obvious forces, governments, environmental groups,
and miners, may be challenging current laws.  Many of Bolivia's
Indians are unaware of the environmental impact of mining.  Many
peasants prefer foreign investment as it brings much needed
employment.

11.       Type of Habitat:  COOL

D.        TRADE Cluster

12.       Type of Measure: ADMINistrative

     The Bolivian government per presidential decree permits joint
ventures.

13.       Direct vs. Indirect Impacts: INDirect

14.       Relation of Measure to Environmental Impact

     a.   Directly Related:   YES  GOLD
     a.   Directly Related    NO
     b.   Indirectly Related: NO
     c.   Not Related:        TES  Pollution Land [POLL]
     d.   Related to Process: Yes Pollution Land [POLL]

     Trade (investment) measures are directly related to the
process of gold mining.  Chemicals used and leaching can harm water
that might be underground.  

15.       Trade Product Identification: GOLD

16.       Economic Data

     Mining is Bolivia's most important economic sector, as it
accounted for 50 percent of Bolivia's foreign exchange.  Revenues
were $366 million in 1993 out of total export income of U.S. $630
million.  Zinc was the primary mineral exported, followed by tin,
gold, and silver.  Bolivia's per capita GNP was $650 per year in
1992 and mining accounted 5.3%.  The value of mining exports was
$922.9 million.

17.       Impact of Measure on Trade Competitiveness: MEDium

     If the Bolivian miners' unions are able to restrict joint
ventures, the cost to Bolivia will be staggering.  COMIBOL may have
to close most of its mine operations.  Also, investment
restrictions would most likely continue COMIBOL's downward economic
trend.  In 1986, it accounted for 70 percent of Bolivia's mineral
exports, today it only accounts for approximately 30 percent. 
Bolivia is dependent on foreign capital to modernize its
inefficient mining sector.  Increased environmental legislation
would limit the revenue it earns from gold by thousands of dollars
and hinder U.S. investment.  This would be a greater cost to its
people, who earn approximately $400 per month working for a U.S.
mining company rather than $100 per month in a Bolivian industry. 
Unemployment and strikes would increase the cost to the government,
that currently pays laid-off workers, by additional thousands of
dollars.

18.       Industry Sector: MINING

19.       Exporters and Importers: BOLIVia and USA

     Africa is the world's largest gold exporter, followed by North
and South America.  Bolivia accounts for a small portion of the
total (see Table 84-1).

                           Table 84-1
                     Leading Gold Exporters
                   1990, thousand metric tons

          Africa:        651,982 tmt
          North America: 473,593 tmt
          South America: 135,188 tmt
               Colombia: 28,000 tmt
               Bolivia:   6,000 tmt

E.        ENVIRONMENT Cluster

20.       Environmental Problem Type: HABItat Loss

     Mining is a major source of pollution in South America,
particularly in the Andes (see COPPER case).  Mining extraction
pollutes fresh water through leaching, where damaging metals will
enter underground water.

21.       Name, Type, and Diversity of Species

     Numerous animal species, including many birds and fish.
     Name:          MANY
     Type:          MANY
     Diversity:     xx highe rplants per 10,00 km/sq (Bolivia)

22.       Resource Impact and Effect: HIGH and SCALE

     Metal leakages, soil erosion, and deforestation have
threatened the extinction of many plants and animals in the
Altiplano plateau.

23.       Urgency of Problem: MEDium

     In Bolivia, the pollution problem is just recently being
addressed.  The government for many years has ignored its own
environmental regulations.  Also, many environmental groups have
found that peasants working the land are ignorant of the
environmental impact that mining has.

24.       Substitutes: Conservation [CONSV]

     The pollution problems in South America have created a new
world market of environmental technology.  Both the U.S. and Japan
are hoping to capitalize on this market in South America.  Japan's
Dowa Mining is planning to send technical experts to Bolivia to
help construct a prototype facility to extract environmentally
harmful metals from mine drainage.

F.        OTHER     Factors

25.       Culture: YES

     The culture of Bolivia's Indians and peasants has been
endangered since the Spaniards created crown mining centers in the
1500s.  After independence in 1825, Bolivia retained the same
economic orientation.  Their culture today continues to be
encroached upon by mining.  The peasants of Cochabamba have formed
a union to fight the destruction of the environment on their region
by mining companies.  However, these same mining companies are
providing their workers with educational and health facilities, as
well as electricity and sewers.  Peasants who had once abandoned
villages for industry jobs in the cities are returning to areas
where private investors are mining.  They receive higher pay and
better benefits than their own industries provide them.

26.       Trans-Boundary Issues: NO

27.       Human Rights: YES

     Peasants are subject to the same unequal economic conditions
today as they were in the 1500s.  They have been given legal title
to many of their lands, but the state still controls their mineral
deposits.   

28.       Relevant Literature

Beamish, Rita and Polly Lane.  "Environment of Competition --    
     U.S. Industry Gets Boost from Clinton to Compete
     Globally."  The Seattle Times, November, 1993, E1.
Charlier, Marj.  "Going South, U.S. Mining Firms Unwelcome at    
     Home Flock to Latin America."  The Wall Street Journal,
     June 1993, pp. A1-A7.
Klamann, Edmund.  "Latin American Officials Say Mines Not 
     Environmental Threat."  Canadian Financial Report, April,
     1994.
Marks, Alexandra.  "Bolivian Public Mines Struggle for Survival." 
     The Christian Science Monitor, June, 1993, 8-9.
Zimmerer, Karl S.  "Soil Erosion and Social Discourses in
     Cochabamba, Bolivia."  Economic Geography, July 1993,
     69/3, 312.

                           References