Ahead of the referendum on April 21 in Ecuador
Ecuador should remain outside the investor-state dispute settlement (ISDS) system.
We, the academics who are part of the CLACSO Working Group “Lex Mercatoria, corporate power and human rights“We express our concern about the possibility of Ecuador rejoining the Investor-State Dispute Settlement (ISDS) mechanism. We reject the inclusion of a specific question on this issue in the popular consultation and referendum, which deals primarily with citizen security issues and has been called by the Daniel Noboa government for April 21. Allowing ISDS again would be a direct threat to Article 422 of the 2008 Ecuadorian Constitution, which states that:It will not be possible to enter into treaties or international instruments in which the Ecuadorian State cedes sovereign jurisdiction to international arbitration bodies in contractual or commercial disputes between the State and private natural or legal persons.".
A 2017 Comprehensive Audit Commission on Investment Treaties and the Arbitration System (CAITISA) in Ecuador showed that Ecuador does not need investment treaties that include arbitration to attract investment. In fact, much of the incoming investment comes from countries with which Ecuador has not signed any investment treaties, such as Brazil, Mexico, and Panama.[1] Based on these findings, the government of Rafael Correa terminated all investment treaties containing ISDS. Since then, the economic right has systematically attacked this article of the Constitution, arguing that it restricts the country's ability to receive foreign investment.
The impacts of investment protection have been significant in Ecuador. Foreign investors have filed 29 ISDS claims against Ecuador to date, half of them related to activities in the extractive sectors (hydrocarbons and mining)[2]. In two-thirds of the concluded cases (14 out of 21), Ecuador lost. As a result of these cases, the country has been ordered to pay foreign investors a total of US$2.900 billion. This is in addition to legal costs (expenses associated with defending the case) and arbitration costs (payments made to the arbitration center and staff), which amount to millions more. Some of the lost cases have demonstrated the irrationality of this system, such as the Chevron claims, which have proceeded despite extensive evidence provided by the Ecuadorian national courts demonstrating the environmental and health damage caused by the company in the Ecuadorian Amazon.
The ISDS arbitration mechanism has been under intense scrutiny for years. Criticism has multiplied from academic, professional, governmental, and civil society sectors globally. The lack of transparency in arbitration procedures, the absence of impartiality and independence of arbitrators, interference with the rights of sovereign states to regulate in the public interest, and the incredibly high costs are just some of the system's many shortcomings. Furthermore, this mechanism creates a deterrent effect (chilling effectThis is because states refrain from introducing necessary policies and laws for fear of being sued under ISDS treaties. Ultimately, it is a mechanism that grants investors access to a private, parallel, and privileged judicial avenue, bypassing national courts.
If Article 422 of the Constitution is amended, the government will be able to sign new treaties that include the ISDS mechanism. The government has already attempted to include ISDS in new treaties, such as the one with Costa Rica, but was prevented from doing so by a Constitutional Court ruling that deemed it unconstitutional precisely because of its inclusion of this mechanism. Other treaties awaiting the outcome of Article 422's future include a free trade agreement with Canada and another with the United States. In the Canadian case, government officials have made it clear that the ISDS mechanism is primarily a means to protect controversial mining projects that are already facing local opposition.
Therefore, we warn about the inclusion of question “D” in the popular consultation and referendum scheduled for April 21, 2024, and we express our opposition to Ecuador returning to the investor-state dispute settlement mechanism, as it is contrary to the protection of human and environmental rights in the country.
[1] https://www.tni.org/files/auditoria_integral_ciudadana_2015.pdf
[2] https://isds-americalatina.org/perfiles-de-paises/ecuador/
April 5th 2024
CLACSO Working Group
Lex mercatoria, corporate power and human rights
This text expresses the position of the aforementioned Working Group and not necessarily that of the centers and institutions that make up the CLACSO international network, its Steering Committee or its Executive Secretariat.
