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Latin American Constitutional Law and Green Constitutionalism: A Path Forward

–José Ignacio Hernández G., Law Professior, Catholic University and Central University (Venezuela); Invited Professor, Pontifical University (Dominican Republic), and La Coruña and Castilla-La Mancha Universities (Spain); Fellow, Growth Lab-Harvard Kennedy School

Introduction

As Ricardo Hausmann explains, to achieve energy transition goals, it is necessary to electrify the economy or, in other words, decarbonize the economy. A critical condition for that purpose is to ensure the supply of strategic minerals like lithium. Moreover, Latin America has a leading role in that objective.[i]

Argentina, Chile, and Bolivia make up the so-called “lithium triangle”, equivalent to approximately 55% of the world’s lithium resources. That means that, with Latin American production, it will be easier to electrify the economy with lithium.[ii]

The institutional framework of extractive industries has a crucial role in mining productivity. Therefore, the rules about the relationship between lithium reserves, the Government, and private investments will influence the capacity of the region to ensure a stable supply of lithium to promote green growth.[iii]

Simón Bolívar´s heritage

In 1829 Simón Bolívar, based on the constitutional dictatorship adopted in 1828, declared that the Government was the owner of mining deposits, following Spanish Law. Although Bolívar’s decree has been interpreted as a revindication of the national sovereignty over mining, its purpose was quite different. In its brief considerations, Bolívar stated that public ownership over deposits was necessary to promote scientific knowledge and entrepreneurship spirit. The government’s property system was envisioned as an efficient way to promote mining activities by the private sector. [iv]

This is the origin of a standard constitutional provision in Latin America, according to which the Government owns mining deposits as “public domain” properties. For instance, following Art. 19 of Chile’s Constitution, the State has the “absolute, exclusive and inalienable domain over mines” (Section 24). As a result, the mining legal framework is inspired by a Roman Law institution: the mining concession, which origin is Art. 1 of Bolívar’s Decree.

Therefore, the mining law in Latin America was inspired by Spanish Law and Roman Law’s provisions about mining concessions. According to the first Mining and Civil Codes approved in the region during the 19th century, mining production was considered an economic activity that only private investment could undertake. For that purpose, the Government granted mining rights to explore and produce through concessions. Those activities were trusted to private investment, and government participation was reduced to royalties and other contractual payments beyond the tax powers and some primary police powers.[v]

In sum, this was a libertarian framework that followed Bolívar’s purposes to promote private entrepreneurship with minimum Government intervention.

National sovereignty over mineral resources

Several factors changed the initial libertarian framework and led to regulation in which the Government exerts national sovereignty over mineral resources. In the mid-20th century, Latin America embraced the new economic order to exercise national sovereignty over natural resources, particularly regarding international investors. That perspective was the justification for the nationalization policies, as happened, for instance, with copper in Chile.[vi]

21st century Latin American constitutionalism reflected that vision. Beyond the public property over deposits, the government exerts the direction of mining activities, including the supervision of the “entire productive chain of mining” (Art. 369, Section IV, Bolivia Constitution).

The national sovereignty principle does not necessarily exclude private investments because the Government has the discretion to grant mining rights through concessions, as the Bolivia Constitution recognizes in Art. 370, Section I. However, mining concessions “must fulfill a social and economic function” (Sections III and V). Consequently, state-owned enterprises can also undertake mining activities (Art. 372).

The national sovereignty principle implied the end of the libertarian framework. Even if mining rights are vested in private investors, the government will exert supervision and control of all mining activities to ensure that they fulfill the national interest. Hence the adoption of the Calvo clause, according to which foreign investment, as a rule, must be subject to domestic law and the jurisdiction of domestic courts (Art. 320, Bolivia Constitution).

The reserve over mining deposits

One institution derived from the national sovereignty principle is the Government’s power to prohibit mining rights concession to private investors. This institution is rooted in the dominium of Roman Law, according to which the Government can decide not to grant mining rights.[vii]

This power is known as the reserve over mining rights. For instance, the Bolivia Mining Code was reformed in 2017 to regulate the Government’s power to reserve strategic minerals for state-owned enterprises. Also, the Code reserved to the Government salt flats, including the Salar Uyuni, considered Bolivia’s most extensive lithium reserves (Art. 26). Therefore, only a state-owned enterprise (Yacimientos de Litio Bolivianos, YLB) can exert mining rights for the lithium exploration and production.

That reserve has not been declared in Argentina and Chile. In Argentina, Art. 2 of the Mining Code regulates the concession to grant mining rights to private investors, although the Provinces have the power to adjudicate concessions. The Provinces of Catamarca, Salta, and Jujuy have adopted special regulations to increase the control over lithium.

Chile has a centralized system to adjudicate mining concessions (Arts. 2, Mining Code). However, strategical minerals, like lithium, are excluded from the general concession framework (Art. 8) and subject to a special regulation adopted in Decree n° 23/2021. For that purpose, the administrative body created for development purposes (Corporación de Fomento, CORFO) can sign special lithium contracts with private investors. The new 2022 Constitution draft posed risks over this regulation because it followed the Bolivia Constitution to increase the Government’s control over mines  (Art. 145).

Other countries have tried to reform the Constitution to increase the governmental regulation over extractive industries, as happened in Mexico. Although Congress did not approve the 2022 constitutional reform, the Mining Code was reformed in 2022 to reserve lithium exploration and production to the Government (Art. 10).

Strategic minerals and the Economic Constitution in Latin America: two models

Latin America Constitutional Law, as happens in some European countries such as Spain and Italy, has adopted provisions regarding the role of the Government in the economy, usually known as the Economic Constitution.[viii] A distinctive figure of the Economic Constitution is the provisions establishing the Government’s role in ensuring equal access to social and economic rights, complemented by the Inter-American Law and, notably, the San Salvador Protocol.[ix]

Therefore, and beyond the differences in the constitutional provisions regarding mining activities, under the Inter-American Law, there is a common Economic Constitution that vests in the Government the responsibility to ensure sustainable development, particularly regarding strategic minerals, as the Inter-American Human Right Commissions concluded in Resolution n° 3/2021.

The role of the Government regarding strategic minerals and, in particular, lithium reflects the tensions in the Economic Constitution between the provisions that promote private investments and market mechanisms and the provisions that trust in the Government the direction of the economy, particularly to protect the environment.  

The constitutional model adopted in the region during the 20th century is based on a balance between the market economy and the economic role of the Government. For instance, Argentina and Chile have one of the more moderated Constitutions regarding that balance. The market economy is recognized according to the promotion of the common good to create equal social conditions (Art. 1, Chile Constitution). Consequently, the economic order must reflect the social justice value, which implies that the Government is responsible for ensuring equal access to essential goods and services related to social and economic rights (Art. 75, Section 19, Argentina Constitution).

The new constitutionalism adopted during the 21st century expanded the economic role of the Government. That is the case of the Bolivia Constitution, which in addition to the social justice value, recognizes the Government as the director of the national economy with the exclusive responsibility to promote the persons’ well-being (Art. 306). This was also the economic system adopted in the 2022 Chile Constitution draft, which recognized the Government as the lead economic actor (Art. 182).  

Therefore, there are two economic models in Latin America regarding the exploration and production of the strategic minerals that the world will need to decarbonize the economy:  the state-led and private investment-led models.

Bolivia follows the state-led model: only the Government, through state-owned enterprises, can produce lithium. The current lithium production is just 500 tons per year. On the other side, Argentina and Chile follow the private investment-led model, which grants mining rights to private firms to produce lithium. Lithium production in Argentina could be estimated at 6,200 metric tons, while Chile is producing 26,000 metric tons, equivalent to 12% of the world’s production.[x]

Towards a new constitutional interpretation over strategic minerals

Two conclusions should be highlighted: (i) the constitutional framework influences lithium production in Latin America, and (ii) to decarbonize the economy, the world will need a reliable lithium supply from the region.

It is necessary, then, to adopt a new constitutional interpretation of mining regulation. Until now, there have been two interpretations. Until the mid-20th century, Constitutional Law adopted a libertarian approach based on the primacy of the private sector, resulting in a private investment-led model. However, in the 21st century, the region shifted towards the national sovereignty approach based on the primacy of the public sector (the state-led model).

Under the national sovereignty approach, the Government, as the director of the economy, can supervise mining activities and undertake them through state-owned enterprises. The government intervention aims to ensure the equal distribution of mining income, following the social justice value.[xi]

Nevertheless, Latin America must first produce minerals to equally distribute mining incomes captured through royalties and taxes. While Argentina and Chile have been able to produce lithium, Bolivia is still trying to decide how to produce that mineral, creating a shortage in the lithium supply (despite having the most prominent resources in the world).

To improve the production of strategic minerals following the social justice value and to follow environmental standards, Latin America Constitutional Law must embrace a new paradigm regarding the public and private sectors. Instead of envisioning them as rivals (the state v the private investment), they should be considered complementary.[xii]

The complementary between the public and the private sector requires a new interpretation of the Economic Constitution beyond the private investment-led and the state-led models. The role of the government cannot be reduced to fixing market failures based on a restrictive interpretation of the subsidiarity principle; neither can this role promote collectivist or totalitarian policies that violate human dignity. Economic development based on social justice must be a shared responsibility between the public and private sectors.

Therefore, the constitutional interpretation of the mining regulation regarding lithium should shift towards the complementarity between the public and private sectors. Innovative public-private partnerships can increase lithium productivity facilitating the decarbonization of the economy. Moreover, it could also help to distribute the mining incomes to promote inclusive development in the world’s most unequal region.

For that purpose, Latin American constitutional law, following Inter-American Law, must consider that sustainable lithium production must be based on the shared responsibility between the government and the private investment, increasing the quality of the economic rights in mining activities protected by the Constitution, with a smart mining regulation implemented by the government.[xiii]

Suggested citation: José Ignacio Hernández G., Latin American Constitutional Law and Green Constitutionalism: A Path Forward, Int’l J. Const. L. Blog, Jan. 20, 2023, at: http://www.iconnectblog.com/2023/01/latin-american-constitutional-law-and-green-constitutionalism-a-path-forward/


[i] Hausmann, Ricardo, “How developing economies can capitalize on the green transition”, International Monetary Fund, December 2022, retrieved at: https://www.imf.org/en/Publications/fandd/issues/2022/12/green-growth-opportunities-ricardo-hausmann. The strategic or critical minerals refers to those that are necessary to produce electricity without fossil combustibles, such as lithium, copper, nickel, and zinc.

[ii] All the estimations regarding lithium are taken from the U.S. Department of Interior-U.S. Geological Survey, Mineral commodity summaries 2022. Regarding the current conditions of strategical minerals in Latin America, see Unzueta, Adriana, et al., (2022), Apalancando el crecimiento de la demanda en minerales y metales para la transición a una economía baja en carbono, Washington, D.C.: Banco Interamericano de Desarrollo.Also, seePerotti, Remco, and Coviello, Manlio (2015), Governance of strategic minerals in Latin America: the case of Lithium, Santiago: Economic Commission for Latin America and the Caribbean (ECLAC).

[iii] We use the “institutional framework” following the “institution” concept in the economy as the rules that apply to the exchange of goods and services, particularly the economic rights related to exploration and production activities. The quality of those institutions influences economic performance. Regarding the oil industry, see Balza, Lenin and Espinasa, Ramón (2015), Oil sector performance and institutions, Washington D.C.: Banco Interamericano de Desarrollo, 3.

[iv] Hernández G., José Ignacio (2016), El pensamiento jurídico venezolano en el Derecho de los Hidrocarburos, Caracas: Academia de Ciencias Políticas y Sociales, 5.

[v] Vergara Blanco (1992), Alejandro, Principios y Sistema de Derecho Minero. Estudio Histórico y Dogmático, Santiago de Chile: Editorial Jurídica de Chile.  

[vi] Novoa Monreal, Eduardo (1972), La nacionalización chilena del cobre, Quimantú: Santiago de Chile.  

[vii] Ballbé, Manuel (1950), “Las reservas dominiales”, 4 Revista de Administración Pública, 76.

[viii] Hernández G., José Ignacio (2006), Derecho Administrativo y Regulación Económica, Caracas: Editorial Jurídica Venezolana. 

[ix] Piovesan, Flávia, “Ius Constitutionale Commune Latinoamericano en Derechos Humanos e impacto en el Sistema Interamericano: rasgos, potenciales y desafíos”, in Bogdandy, Armin Von et al., (ed) (2014), Ius Constitutionale Commune en América Latina. Rasgos, potencialidades y desafíos, México D.F.: Universal Autónoma Nacional de México- Instituto Max Planck de Derecho Público Comparado y Derecho Constitucional, México D.F., 61.

[x] Mineral commodity summaries 2022 (n 2).

[xi] The fiscal incomes derived from extractive industries can result in the extractive State, that is, the State dependent on extractive incomes to cover public expenses, such as the Mining state or the Petro state. The political institutions of such states tend to have a weak bureaucratic capacity and a propensity to degenerate into clientelist and rentier institutions. See Karl, Terry Lynn (1997), The Paradox of Plenty: Oil Booms and Petro-States, Los Angeles: The University of California Press, 47-49.

[xii] Mazzucato, Mariana (2022), Transformational change in Latin America and the Caribbean. A mission-oriented Approach, Santiago: Economic Commission for Latin America and the Caribbean (ECLAC), Santiago, 2022, 49.

[xiii] Smart regulation is based on the quality of the regulatory policies that should facilitate innovation in the mining industry. See Mazzucato (n 12).  

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Published on January 20, 2023
Author:          Filed under: Analysis
 

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