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Puentes, Vol 10, No 3 | July 2009
(Freely translated by Anoosha Boralessa in 2015 for bilaterals.org)
Ecuador shakes up international fora
Exiting ICSID and joining ALBA and UNASUR,along with the customs restrictions it applied on its CAN neighbours, are the recent measures that have been taken by the government of Ecuador to demonstrate that there is an alternative trade policy.
The new political constitution of Ecuador approved by the people’s plebescite on 28 September last year snared its first victim. According to the Ecuadorian government, Art. 422 of the country’s new Magna Carta declared that it was unconstitutional for this Andean nation to submit to arbitration unless the counter party is a Latin American citizen and the arbitration takes place in a forum within Latin America.
Accordingly, on 2 July last year, the Ecuadorian president Rafael Correa signed a decree that “denounced and accordingly terminated” the agreement with the International Centre for the Resolution of Investment Disputes (ICSID), part of the World Bank Group.
Despite the legal reasons cited, the measure has not generated controversy because, according to the United Nations Conference on Trade and Development, Ecuador is the fourth most challenged country facing increasing claims brought by investors in international fora. There are in total 14 disputes against Ecuador.
The six disputes currently under way at ICSID alone are said to represent claims for more than US$ 10 billion.
Additionally, President Correa has harshly criticised ICSID rulings which he considered to be skewed in favour of investors.
Consequences and alternatives
While investors and analysts have criticised Ecuador’s decision to denounce both the ICSID Convention as well as several bilateral investment treaties, Ecuador presented data showing that these decisions do not adversely affect foreign investment, which in recent years has been beneficial to Ecuador.
As an alternative to resolve investor-state disputes, Ecuador sees two options. First, some of the new contracts signed with oil companies provide for dispute settlement at the Centre for Arbitration and Mediation in Santiago, Chile, under the rules of the United Nations Commission for International Trade Law.
Second, Ecuadorian officials have stated that when their country assumes interim presidency of Union of South American Nations next 10 August, they will bring up the establishment of a system of intermediation on foreign direct investment during the Summit.
Membership of Alba and UNASUR
Together with Antigua and Barbuda and San Vincent and the Grenadines, Ecuador has joined a project initiated by Venezuela on 24 June last year.
Ecuador’s exist from ICSID would facilitate its incorporation into what is now known as the Bolivarian Alliance for the Peoples of Our America -People’s Trade Treaty (ALBA-TCP). It should be recalled that in April 2007, the members of ALBA agreed to withdraw from the ICSID Convention.
According to President Correa, the incorporation of his country into the ALBA-TCP reaffirms its willingness to “be included in this common physical area, share energy projects, plan social development work together and promote new regional tribunals to resolve disputes.”
In addition, Ecuador, as host country for the UNASUR Secretariat headquarters, was, together with Bolivia, the first nation that ratified the UNASUR treaty, yet again demonstrating its support for fresh regional mechanisms.
One of the projects that Ecuador would promote within UNASUR was the creation of an advisory centre for international law specialised in investment matters, and the creation of an international arbitration centre governed by the legal systems of Latin American countries, a project supported by Bolivia which, in 2007, was the first country to withdraw from the ICSID Convention.
Ecuador has sponsored yet further proposals such as the institutionalisation of a new financial system for the region.
Will Ecuador leave the Andean Community of Nations ?
Ironically, the regional forum in which Ecuador does not feel at ease is that which one would imagine it to be most aligned : the Andean Community of Nations (CAN).
This is because Ecuador had to fight out its differences with its partners following its decision to safeguard exchange rates. In the latest episode, Ecuador decided to apply new measures on imports from Colombia, arguing that during the last year, the Colombian peso had devalued more than 40% vis-a-vis the dollar.
While Colombia denounced the measure as illegal, Ecuador argued that at the same time that it authorised measures against Colombian imports it notified the CAN requesting a ruling from the Secretary General within seven days.
Given that CAN did not move on the matter, Ecuador invoked Art. 98 of the Cartegena Agreement which allows the measures to be applied if the country making the request considers that the delay in decision-making may cause damage.
To increase the pressure, on 23 July President Correa declared to the international media that if the CAN Secretariat would not rule in its favour, “Ecuador would have no further interest in the CAN", and as he has already demonstrated, he is capable of making this kind of decision.