CHAPTER 1 MINING LEGISLATIONS IN LATIN AMERICA: REFORM AND MODERNIZATION (ENGLISH VERSION)

• Jurisdiction: Derecho Internacional

Mineral Development in Latin America
(Nov 1997)
CHAPTER 1
MINING LEGISLATIONS IN LATIN AMERICA: REFORM AND MODERNIZATION (ENGLISH VERSION)


Juan Luis Ossa
Ossa & Cia Ltda
Santiago, Chile

Prepared for Delivery at the Rocky Mountain Mineral Law Foundation Institute on Mineral Development in Latin America

November 3 and 4, 1997

at

Santiago, Chile

This document has three parts.

The first deals in general terms with the reform and modernization of mining legislations in Latin America, describing the main trends to be observed in these legislations.

The second part, a "Short Survey of Mining Legislation in Selected Countries", allows a closer comparison between the legislations of Argentina, Bolivia, Brazil, Mexico, and Peru.

The third part complements the above, as it offers a general overview of the Chilean mining legislation.

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PART ONE GENERAL TRENDS IN THE REFORM AND MODERNIZATION OF MINING LEGISLATIONS IN LATIN AMERICA

1. INTRODUCTION

A comparative analysis of the legislations of different countries in the same region is always interesting and has become truly necessary in the increasingly globalized and interdependent world of today.

1.1 Recent history

Until a few years ago, the economic development models prevailing in Latin America were relatively protected and reluctant to competition from abroad, they set conditions to foreign investment, and provided for considerable government intervention. Mining was no exception to this restrictive pattern: moreover, it often suffered it more acutely because mining was usually defined as a strategic area of the economy.

During the 80s, however, the picture began to change. First, the idea arose strongly that mineral resources should not continue to be immobilized but required prompt development in order to become human capital by way of economic development and expenditure on social policies, and that the active role of private enterprise was essential for this purpose.

Then came the beginning of the globalization of the economy, the growing certainty that states are inefficient managers, the recovery of faith in the market as the optimum way of allocating resources, and the impression that the countries of the region were henceforth exposed to international competition, for which in fact the region's mining activities clearly offered competitive advantages.

Thus, it came as no surprise that many governments in Latin America began to look on mining legislation as a valuable instrument of economic policy, because although it is not sufficient in itself to attract substantial investments to the sector, it is nonetheless essential to make it possible.

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In this context and as part of a more or less generalized phenomenon that spread to almost all the economies in the area and certainly to all the sectors of those economies, national mining laws have undergone more or less profound reforms, in some cases with active cooperation from the World Bank. The legislations thus reformed were those of Peru (1981-1994), Chile (1983), Ecuador (1991, currently undergoing revision), Mexico (1992), and Bolivia, where the most advanced mining legislation in the region has been enacted this year. Argentina has been improving its legislation in various ways, gradually but continuously and very successfully. Colombia adopted a number of reforms in 1988, which have not been altogether welcomed; something similar happened in Cuba in 1995. Lastly, Brazil and Venezuela have still to introduce substantial reforms into their legal systems, which were enacted in 1967 and 1945 respectively, and which are outdated in the eyes of the international community.

1.2 The keys of success

The reforms generally held to be most successful have some features in common. One of them is the notion that beyond the good wishes of legislators or the pressures of bureaucracies, it is the action of market laws what sets a mine in operation or closes it down. This basic idea leads to other fairly evident conclusions: that mining laws enacted in each country should contribute to enhance the international competitiveness of that country; that future mining growth should rest on private enterprise, whether domestic or foreign; and that, as a result, governments should surrender their role as producers. Another basic notion is that mining development should be compatible with preserving the environment and respecting the secular habitat of indigenous populations; both concepts are of primary importance but if taken to extremes -as might be the case for instance in Ecuador- they could restrict the development of large-scale mining. This set of guiding principles has led to the simplification of laws, befitting the reality of each country, easily enforceable and above all freed from the utopias and from the state interventionism which for so many years were characteristic of Latin America and made their legislations into no more than ineffectual declarations, and therefore neither respectable nor respected.

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1.3 Constitutional provisions

The term mining legislation is understood to include the provisions established for mining under each constitution. Some of these -e.g. in Argentina- hardly mention the subject, while others -e.g. in Chile- deal with it at some length.

Generally speaking, constitutions are required to guarantee the security of mining rights. In this sense, the constitutions of Chile and Peru are generally held to comply adequately with this objective: not only do they ensure ownership of the mining concessions, but furthermore they entrust the fundamental statute of mining to a legislation which may only be amended with a higher quorum than normal.

One issue on which all constitutions agree is the legal distinction between the surface land and the mineral wealth beneath, which all agree in assigning to the state. This is of course nothing new; it stems from the heritage of the old laws that prevailed in Spanish America during colonial times, strengthened by the need to have a higher body regulate the basic framework of mining, and often stimulated by the statist trends that predominated until a few years ago and that still persist in certain cases. Notwithstanding, the idea of considering the surface land and the mine as separate and independent resources, which has come to seem to us well-nigh obvious, is not a natural notion; and many indigenous populations in the region oppose this view, feeling that the land where they live comprises not only the surface soil but also the subsoil and even the surrounding flora and fauna.

2. TRENDS IN THE DIFFERENT LEGISLATIONS

We shall discuss below in broad outline the salient points of every mining legislation in order to establish the direction of the new trends in Latin America. It should be pointed out, however, that many legislations include regulations on the environment, provisions governing foreign investment, and various exceptional tax provisions. Although these issues are connected with mining activities, they are not an essential part of mining legislation itself and so will not be dealt with at this time. In any event, we believe that regarding environmental protection, foreign investment, and taxation, mining should be regulated by ordinary law provisions extant in each country, to avoid possible long-term distortions

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which might be detrimental to the very activity that those provisions intended to privilege. Clearly, when seeking to benefit mining in an exceptional way, the legislators of each country have been driven by very powerful motives; ideally, however, in the long run such exceptional benefits ought to disappear and mining, in everything not exclusively pertaining thereto, ought to be governed by the common régime enacted in each country for other economic activities.

Nor do we intend to go into the very sensitive problem of pithead royalties charged by the government in some countries nor into the share that the owner of the surface land sometimes enjoys in the proceeds of the exploitation. Both detract from mining competitiveness in the countries where they are applied. One good step taken to resolve the first problem was the federal agreement executed by the Argentine provinces in this respect.

2.1 Substances open to exploitation by private enterprises

The first point of our discussion covers the substances given open to exploitation by private enterprises. In general, almost all minerals may be exploited by private operators; also in general, the usual exceptions to this rule are liquid and gaseous hydrocarbons, which are reserved to the state, and construction materials, which are reserved to the owner of the land.

2.2 Treatment of foreign mining companies

Another interesting issue is the treatment afforded to foreigners. The restrictive measures that used to apply to foreign investors have been largely toned down. In Argentina and Chile, for example, no limitations apply to foreign mining companies; other legislations, such as in Bolivia, Brazil, and Ecuador, restrict their operations in frontier areas; while Brazil and Mexico still impose some constraints or special conditions on foreign mining companies.

2.3 Contract or concession?

A third point of interest is the type of juridical instrument applicable in each country to permit private exploitation of mineral resources. In a few cases (namely Colombia and Honduras) the mining right is contained in a contract negotiated with the government, a procedure that undoubtedly paves the way for administrative discretionality.

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Being the mining concession the preferred instrument, some of its elements are discussed in more detail below.

2.4 The mining concession: who grants it, duration, transfer, procedure

In the great majority of cases, the mining right derives from a mining concession granted by the state to the first applicant. As a rule, under this...