The law of the pendulum in Ecuadorian foreign investment policy

On September 3, 2021, the re-entry of Ecuador into ICSIDan institution dependent on the World Bank created in 1965 for the arbitration of disputes related to foreign investments.

This return is the epitome of the Copernican turn executed by the country in regard to its position in matters of foreign investment and the solution of controversies derived from them.

The pendulum effect promoted by the current president, William Lassodemolishes the anti-ICSID framework that the former president Rafael Correa Construction began in 2007.

Arbitration and investments

According to the UN Center for Investment Policy Analysis (Investment Policy Hub), there are currently more than 2,500 bilateral or multilateral agreements in force in which States undertake to promote and protect foreign investment in their sovereign territory. The vast majority of these agreements offer the investor the possibility of resorting to ICSID to resolve any problems that may arise from their investment.

Since its creation, ICSID has been in charge of resolving -not without rejection on the part of some international players– the vast majority of million-dollar claims that foreign investors have filed against host States of your investments due to the alleged non-compliance with the investment agreements.

Correa versus ICSID

The origin of the volatile Ecuadorian politics around ICSID can be linked to the inauguration, in 2007, of Rafael Correa as president of the republic.

Your party’s election program Country AllianceHe was very critical of the extractive activities carried out by foreign companies on Ecuadorian soil and anticipated a belligerent state politics in this matter.

Thus, as soon as Correa’s first presidential term began, a new Constitution was approved in 2008, which, in its article 1, states:

“Ecuador is a constitutional State of rights and justice, social, democratic, sovereign, independent, unitary, intercultural, multinational and secular in which the non-renewable natural resources of the territory of the State belong to its inalienable, inalienable and imprescriptible heritage”.

After the approval of the aforementioned 2008 Constitution, new general elections were called, which Correa also won. In 2013 he was re-elected for a third term.

In his government program, 35 Proposals for the Socialism of Good LivingCorrea stated:

“We totally reject that disputes with foreign private companies become conflicts between States. The Ecuadorian Constitutional Court declared unconstitutional eleven bilateral investment treaties that are instruments of transnationals to plunder the country through obscure international arbitration processes.

An exit that caused international stupor

Along the decade strapthe president did very strong statements in international forums about his firm intention to “liberate Ecuador from this yoke of transnational capital” that constituted ICSID, which “always decides in favor of big capital and not in favor of the truth.”

Article 422 of the Constitution of 2008 (“International treaties or instruments in which the Ecuadorian State cedes sovereign jurisdiction to instances of international arbitration, in contractual or commercial disputes, between the State and private individuals or legal entities may not be concluded”) was the key legal tool for fight him, until then, status quo hegemonic in terms of international investments.

The content of said article has been very controversial because it seems to prohibit international treaties in which there is a submission to international arbitration. On the contrary, it authorizes the submission of the country to regional arbitral bodies.

Thus, the Ecuadorian Constitutional Court declared the unconstitutionality of more than a dozen bilateral investment agreements. Agreements in which Ecuador had agreed to submit to ICSID in case of claims by foreign investors.

As the culmination of this process of legal disengagement, Ecuador made use of the Article 71 of the ICSID Convention and on January 7, 2010, Ecuador’s withdrawal from this successful Convention became effective.

The end of the “Correa Decade”

In 2017, Lenin Moreno, who had been Correa’s vice president, was appointed president of Ecuador. His government program regarding international investments followed the trail of his predecessor.

However, it seems that the ideological and personal connection between former President Correa and Moreno began to suffer during the latter’s mandate. Moreno would end up being expelled from the match accused of breaching his government program.

In his last months in office, the Ecuadorian courts sentenced Correa to eight years in prison for passive bribery. The former president was already living in Belgium with his family at the time.

Ecuador returns to ICSID

In May 2021, Guillermo Lasso assumed the presidency of Ecuador. In the electoral program of his party, Free Ecuadorthe policy of previous presidents was criticized on foreign investment:

“Commercial and tourist isolation impacts employment. For a long time, commercial and international relations in our country prioritized prejudices and false ideological concepts instead of the well-being of Ecuadorians (…) Recent governments have deteriorated the environment for both foreign and local investment in our country. Ecuador is unable to attract enough foreign investment due to the uncertainty caused by legal insecurity.”

Lasso presented ICSID to Ecuadorian citizens as a factor of economic prosperity for the country. Less than a month before assuming the presidency, he announced his intention to that Ecuador return to the institution. The argument for it was:

“This important step will allow Ecuador to meet new business partners and strengthen relations with those who already have alliances, since the agreement encourages the attraction of responsible investors who are committed to contributing to the country’s development.”

As a result of the presidential announcement, political and legal events followed one another very quickly: on June 30, 2021, the Ecuadorian Constitutional Court ruled that the ratification of the ICSID agreement did not require either the approval of the National Assembly or a constitutionality ruling of the Court. Thus, on July 16, 2021, Ecuador “re-ratified” him.

Eleven days later, the National Assembly rejected that return for suppose a violation of article 422 of the Constitution. Despite this, on August 4, Ecuador deposited the instrument of ratification of the agreement in the World Bank and on September 3, 2021, came into force of the ICSID text for the country.

The attacks on the way back

The return to ICSID prodigal son It has generated polarized opinions in Ecuador. The vehement statements by former President Correa about Lasso’s pro-ICSID turn are an example of the political and social bitterness that the country is currently suffering.

Correa has published several tweets in which he affirms that the return to ICSID is, in reality, “a delivery of the Homeland”. He describes as “disastrous” the institution that, in the words of your dolphin, Andres Arauzhas made Ecuador “lose 2 billion dollars.”

The former president also highlights the legal violations that this return has brought: “Openly contradicting the Constitution of the Republic (…) the Assembly did not intervene or pronounce itself”. In addition, Correa predicts a dark future for the country since “the door is opened to privatization” and points out those he considers guilty (“please do not forget their authors. #LosCorruptosSiempreFueronEllos”).

State Pact on International Investments: Mission Impossible in Ecuador?

Unless a revulsive prevents it, it does not seem that the future of Ecuador with respect to ICSID is going to be linear and exempt from controversy. A prioriit is more likely that the pendulum will continue swinging sharply at the mercy of changes in government, with the negative effects that this may have on the economic and legal sphere of the country.

Given the international investments are an essential topic for the development of Ecuador, this author considers that it would be optimal for the country to achieve stability in the treatment given to this matter in the near future.

Difficult as it may seem, it would be crucial for the Ecuadorian political parties to approach positions and negotiate the bases of an authentic state pact on international investments. The achievement of said pact, apart from speaking in favor of the maturity of the Ecuadorian political class, would serve as an example in the Latin American context and could promote other advances in the region.

Assuming the bitter political reality of Ecuador, perhaps that state pact will initially have to be minimal. It could take the form, for example, of a greater implication of the country (Ecuador already presented in 2019 a communication in this matter before UNCITRAL) in the process of reforming the dispute settlement system between investors and States that is currently being debated within the United Nations.

Katia GomezConciliator appointed by the Kingdom of Spain before ICSID (2020-2026), Professor of Private International Law, Zaragoza’s University

This article was originally published on The Conversation. read the original.

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