June 2017
ECUADOR WITHDRAWS FROM ITS REMAINING INVESTMENT
TREATIES
The withdrawal of Ecuador from
these bilateral investment treaties is part of
similar measures taken in recent years by a growing number of developing
countries in pulling out from such treaties.
By
Daniel Uribe
Ecuador has unilaterally withdrawn from its
remaining 16 bilateral investment treaties (BITs). With this decision, Ecuador
has concluded the termination of 26 BITs signed by the country since 1968.
The 16 BITS which Ecuador is withdrawing from had been signed with
the Netherlands, Germany, Great Britain, France, Spain, Italy, Sweden,
Switzerland, Canada, the United States, China, Argentina, Bolivia, Peru,
Venezuela, and Chile.
The Ecuadorian move is part of similar measures taken in recent
years by a growing number of developing countries to withdraw from their
bilateral investment treaties. These include South Africa, Bolivia, Indonesia
and India.
The President of Ecuador, Mr. Rafael Correa Delgado, stated that
the decision to withdraw from these BITs is not sudden, but that it responded
to a governmental process aimed at complying with the Constitution of Ecuador
adopted in 2008, which recognises the human being and human rights above the
power of economic capital.
The withdrawal of Ecuador from these BITs responds to the final
stage of a review process that started in 2008, and which had led to the
establishment of a joint government-civil society audit commission (known as
CAITISA by its Spanish acronym) established by the government in 2013.
CAITISA was composed of government officials, academics and
researchers, lawyers and civil society groups. Its objective was to
verify the legality, legitimacy and lawfulness of investment treaties and other
investment agreements signed by Ecuador, as well as to audit the validity and
appropriateness of the awards, procedures, actions and decisions issued by
Investor-State dispute settlement (ISDS) bodies and arbitral tribunals.
This Citizen Commission has been the first of its nature, and the
methodology and composition followed to review and reform the current
international investment treaties regime could serve as an “inspiration and
model for other countries in the region and world”, according to Ms. Cecilia
Olivet, President of the Commission.
During the official presentation of CAITISA’s 668-page Executive
Report (in Spanish), Ms. Cecilia Olivet explained the key findings of the
report as follows:
1. Concerning the effects of BITs as a tool to attract foreign direct
investment (FDI) and development into the country, the report found that such
correlation is non-existent as the signing of BITs is not decisive for
attracting FDI.
a)
According to the report, Ecuador only
received 0.79% of global FDI that flowed to Latin America and the Caribbean;
b)
The principal sources of FDI that flow
into Ecuador are from Brazil, Mexico and Panama, none of which have a BIT with
Ecuador;
c)
Of the 7 largest foreign investors in
Ecuador, only 23% come from a country which has a BIT signed with Ecuador.
2. According to the report, the BITs signed by Ecuador contradict and undermine
the development objectives laid down in the Constitution of Ecuador.
- Even though the Constitution mandates the State to regulate foreign
investment to ensure it plays a positive role in achieving the national
development plan, the BITs signed by Ecuador include clauses that erode the
role of the State.
3. The report found that the costs of signing these BITs for Ecuador have been
greater than the alleged promises of investment and development that have
failed to materialise.
a) Ecuador has faced 26 cases in international tribunals based on the BITs;
b) From those 26 cases, 15 cases have ended in awards. From those 15 cases, the
State has been favoured only twice, while the investor has been favoured in the
remaining 13 cases (87%).
c) A total of $21.2 billion dollars has been claimed as
compensation from Ecuador by corporations for alleged violation of BITs;
d) The total amount disbursed so far by the State amounts
to $1.498 billion dollars, equivalent to 31% of education spending, or 62% of
health spending;
e) From the total of cases still open against Ecuador, the State runs the risk
to be obliged to disburse USD 13.4 billion, which is equivalent to 52% of the
General State Budget for 2017.
The report of the Commission recommended to the State to terminate
all BITs. It proposed negotiating new investment instruments, such as
investment contracts providing restricted investor rights and investor
obligations, or new international investment agreements based on alternative
model BITs.
Such instruments should restrict the definition of investments, and
strengthen the right of the State to regulate for the common good and
sustainable development, including by recognising the right of the State to
impose obligations to foreign investors, apply performance requirements, secure
the fiscal competence of the State, secure technology transfer, and force
investors to respect international standards and human rights and the
environment, among others.
The Commission also recommended the State not to include
investor-state dispute settlement (ISDS) mechanisms in new BITs, and to
strengthen the domestic jurisdiction in order to provide judicial guarantees
for investors in national courts. These efforts should include the development
of a comprehensive national policy on and specific rules for foreign investment,
and the creation of one central agency to be in charge of the institutional
governance of foreign investment.
President Rafael Correa Delgado stated that in different
international forums the country has led discussions on the legitimacy of
BITs. He emphasized the leading role of Ecuador in different
international processes concerning these issues, particularly the process for
the adoption of a binding treaty on business and human rights in the United
Nations Human Rights Council. Ecuador was elected Chair of the Open Ended
Intergovernmental Working Group that is negotiating the treaty.
The President of Ecuador also highlighted the need to join forces
with others to achieve an integral reform of the ISDS system. He noted
the need (in a reformed system) for permanent and professional judges, with
renowned knowledge and experience in public international law, in order to
avoid the strong commercial orientation that characterized the current system.
The experience of Ecuador has also led to discussion on the creation
of a Regional Centre for Dispute Resolution in UNASUR, with the objective of
providing more transparent proceedings and appeal mechanisms in the ISDS
system; this also includes the adoption of a code of conduct for judges.
Finally the efforts of Ecuador are part of a growing global movement
to reform the international investment treaties regime. Many countries in
almost all regions have started to review their investment treaty
regimes. They are seeking a more balanced approach, one that provides
rights of investors, but also recognises the right of the State to regulate
investments and investors for national interests, development objectives and
the rights of their peoples.
For example, South Africa initiated the termination of its existing
BITs (when they expire) in recent years, with the objective of safeguarding its
right to regulate investments and the right to establish development policies
while at the same time protecting investor rights. Bolivia has also
withdrawn from its BITs. India recently announced it would withdraw from
57 investment treaties with the objective of re-negotiating them based on its
new model BIT. The newly announced measure by Ecuador to withdraw from
its remaining BITS is in line with the measures of these other countries.
According to the current Trade Minister of Ecuador, Mr. Juan Carlos Cassinelli,
Ecuador is thinking of the re-negotiation of its BITs, on the basis of a new
text that contains reforms to the ISDS system (1). – Third World Network
Features.
(1)
See: http://www.andes.info.ec/es/noticias/gobierno-aclara-denuncia-16-tbi-no-tendra-efectos-negativos-comercio.html
-ends-
About the author: Daniel Uribe is a Visiting Researcher at the South Centre.
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