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NEWS

Ecuador returns to ICSID after 12 years

 I. Ecuador and the ICSID Convention

On January 15, 1986, Ecuador signed the International Center of Settlement of Investment Disputes (ICSID) Convention which offers a neutral forum for international dispute resolution. During the 90´s, Ecuador followed the general trend adopted by many other South American countries of signing Bilateral Investment Treaties (BITs) with the intention of attracting foreign investment. On April 19, 2001, Ecuador ratified the convention during former President Gustavo Noboa Bejarano´s administration. Several years later, Ecuador became one of the most sued countries under the ICSID convention.

Since the beginning of President Rafael Correa administration (2007-2017) he manifested his hostility towards the ICSID convention: “withdrawing from ICSID is necessary for the liberation of our countries because [ICSID] signifies colonialism, slavery with respect to transnationals (…) I cannot tolerate this”[1], the former President said in public interviews.

 Correa´s feud against ICSID basically compromised 4 steps: i) In 2008, Ecuador denounced over a third of its BITs; ii) Later in 2008, the new Constitution of Ecuador came into force and it contained a confusing provision which seemed to prohibit the country from submitting disputes to international arbitral tribunals; iii) On July 2, 2009, President Correa issued Executive Decree Nº 1823 denouncing the ICSID Convention and declared its termination; iv) A couple of years later, Ecuador denounced the termination of all of its BITs. It is worth mentioning that most of the BITs contained survival clauses, so the investors were not prevented from commencing ICSID arbitrations against Ecuador.

One of the main accusations that Correa used for terminating the BITs is that they were “unconstitutional” pursuant article 422. However, the Constitution forbids entering intro treaties or international instruments that submit jurisdiction to international arbitration tribunals in contractual or commercial disputes and investment arbitration is a complete different creature. Unfortunately, the Constitutional Court did not consider that investment arbitration is different from commercial (or contractual) arbitration and declared that the BITs were unconstitutional; The unconstitutionality argument was seconded by the National Assembly and a special committee (CAITISA) in charge of reviewing the denunciations which reached to the same conclusion.

II. Ecuador returns to ICSID after 12 years

In the 2021 presidential elections, Guillermo Lasso, a former banker, was elected as the President of Ecuador. President Lasso has vowed to attract foreign investment and break away from the leftist policies adopted during Correa´s administration. It came as no surprise that one of the first things that President Lasso would do is try to find ways for regaining the trust of foreign investors after years of political instability. On June 21, 2021, the State signed the ICSID convention and now the next step is ratification.

There is an ongoing discussion on whether the ICSID convention needs to be previously approved by the National Assembly in accordance to article 419 of Constitution.  Pursuant to article 419, the ratification of international treaties will require the approval of the National Assembly in the following cases: 1) They refer to territorial or boundaries matters; ii) They establish political or military alliances; iii) They contain the commitment to issue, modify or repeal a law; iv) they refer to rights guaranteed in the Constitution; v) They compromise the State´s economic policy to international financial institutions or international companies; vi) compromise the country to integration and trade agreements; vii) They give competences of internal legal order to an international or supranational organization and; viii)  They compromise the country´s natural resources, water, biodiversity, etc. In my view, the ICSID does not require the approval of the National Assembly as it does not fall in any of the categories previously mentioned; Its very nature is to offer a neutral forum to solve international disputes.

Another relevant aspect is that Ecuador will consent to submit specific disputes to that mechanism on separate instruments to be signed with foreign investors. For instance, Ecuador could be part of the ICSID convention and not have a BIT containing a standing offer to arbitrate under said convention; Hence, being part of ICSID does not equals to automatic consent to arbitrate all disputes under that forum.

On June 21, 2021, President Lasso´s General Legal Secretary sent a communication to the Constitutional Court asking them to clarify on whether ICSID needs the prior approval by the National Assembly. In this document, the General Legal Secretary clearly explained that due to ICSID´s nature it does not require the National Assembly prior approval in accordance with article 419. In addition, he said the President has the legal capacity to sign and ratify international treaties according to article 418: “the President of the Republic is responsible for signing and ratifying treaties and other international instruments. The President will immediately inform the National Assembly of all the treaties that it sings, with a precise indication of their nature cand content (…)”. Currently, the Constitutional Court has not issued a decision on this.

III. Conclusion

The signature of the ICSID convention shows the current administration´s compromise of protecting foreign investment and attracting capital to the economy. In my view, this is a positive and important step taken by President Lasso because it allows Ecuador to enter into important new agreements with the international community, which will contribute to the country´s economic growth and result in the generation of jobs for its citizens and development of important projects for their well-being.

 

[1] https://www.iisd.org/itn/en/2009/06/05/ecuador-continues-exit-from-icsid/


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