Ecuador’s new constitution and international arbitration

International Law Reporter | 6 October 2008

Ecuador’s New Constitution and International Arbitration

Sarah Ganslein

On September 28, 2008, 64% of Ecuadorians voted in favor of adopting a new constitution, representing a victory for President Rafael Correa. The new constitution — Ecuador’s twentieth — allows Correa to run for a second and third term (possibly keeping him in office until 2017) and gives him the power to reform the courts and central bank, among other institutions. The 444 articles, which represent the work of Ecuador’s Constituent Assembly, include such reforms as legalizing abortion, providing the same rights to homosexual and heterosexual couples, and offering pensions to stay at home mothers, free health care, and education.

While many of the articles focus on domestic reforms, others address international relations. One of particular interest to foreign investors may be Article 422 (set out below), which provides that Ecuador will not enter into international agreements under which Ecuador would have to cede jurisdiction to international arbitral tribunals in contractual or commercial matters between the State and individuals or corporations. There is an exception for agreements that resolve disputes between Latin American States and their nationals through regional arbitral tribunals. Article 422 is part of a trend in the region against international arbitration of investment disputes.

It remains to be seen how this provision will impact existing international agreements, including the U.S.-Ecuador Bilateral Investment Treaty. Ecuador has not given any recent indication that it plans to withdraw from the U.S.-Ecuador BIT. However, there have been reports of plans to withdraw from nine other BITs, following notification in December 2007 that Ecuador would no longer consent to submit oil and mining disputes to ICSID. Assuming Article 422 prevents the entry into future agreements containing international arbitration provisions and considering the other constitutional reforms prioritizing local investors and state-owned companies, foreign investment could well be adversely affected.

For now, Ecuador will need to begin following its Transition Regime, as set forth in the new constitution. These provisions outline future steps for the country, including holding elections and establishing a Legislative Commission, which will create new state authorities and approve legislation necessary to implement the constitutional reforms.

Article 422 — No se podrá celebrar tratados o instrumentos internacionales en los que el Estado ecuatoriano ceda jurisdicción soberana a instancias de arbitraje internacional, en controversias contractuales o de índole comercial, entre el Estado y personas naturales o jurídicas privadas.

Se exceptúan los tratados e instrumentos internacionales que establezcan la solución de controversias entre Estados y ciudadanos en Latinoamérica por instancias arbitrales regionales o por órganos jurisdiccionales de designación de los países signatarios. No podrán intervenir jueces de los Estados que como tales o sus nacionales sean parte de la controversia.