The International Court of Justice on Thursday paved the way for the construction of a controversial pulp mill project in Uruguay, to the disappointment of Argentines claiming they will damage the environment.

This is an important victory for Uruguay, where the $1.7bn pulp mill project on its border with Argentina will provide a big boost to its tiny economy. As Uruguay’s largest ever industrial investment, the project represents about 10 per cent of GDP.

Argentina accuses Uruguay of breaching an international treaty governing the Uruguay River separating the two countries and on whose banks the mills are being built by acting “unilaterally”. A final ruling on is not expected for another 2-3 years, but until then the United Nations’ highest court in The Hague has ruled that the pulp mills will not cause irreversible harm.

Paul Reichler, a lawyer of Foley Hoag who is representing Uruguay, is confident that it can be demonstrated that the plants will operate safely and without polluting environment, pointing out that by the time a decision will have to be reached at least one of the plants will be operational.

“It will not be a matter of speculation, fears or academic theories - the court will not have to guess,” he says, adding that the mills will be bound to operate by European standards to be introduced next year and will be the strictest in existence.

The ruling is good news for the companies building the factories, Finland’s Botnia and Spain’s Ence, who are awaiting approval for $400m in funding from the International Finance Corporation, the private sector arm of the World Bank. The funding was suspended in April until a positive outcome of a study on the project’s social and environmental impact, which may also determine the future of loans from private banks involved. Argentina’s strategy is now expected to focus on preventing those loans.

But it is feared that disappointed Argentine activists living across the river from the cellulose plants may resume road blocks across bridges linking the two countries that earlier in the year caused losses to the Uruguayan economy of an estimated $400m.

“The roadblocks should not return, as they have only made matters more complicated,” said Paula Brufman of Greenpeace in Argentina. “We support the fight against Uruguay, but there is also a need to resolve the critical situation of Argentina’s own paper mills. There is serious contamination going on in our own rivers too.”

The trial represents the first time that Latin American countries have ended up in an international court over an environmental dispute. “This case is going to set a very important precedent in the area of international environmental law which could affect many states,” said Mr Reichler.

“The court stated how concerned it was to protect the environment and at the same time protect the sovereign rights of governments to pursue economic development. but I would not say that the court chose economic development in favour of environmental protection,” he added, explaining that Argentina had simply failed to present sufficient evidence to justify the suspension of construction.

Get alerts on Global Economy when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.

Follow the topics in this article