Jonathan C Hamilton and Francisco X. Jijon, “Ecuador Treaties and International Ramifications” (2014)

The Republic of Ecuador began threatening to terminate investment protection treaties in 2007, after Rafael Correa took office. In 2009, it gave notice of its denunciation of the Washington Convention, also known as the ICSID Convention. It terminated certain investment treaties, and then established a commission to review its treaties. This article summarized the status as of 2014. (Ultimately, in May 2017, just prior to the end of the Correa administration, Ecuador terminated its remaining investment treaties.)

Will Ecuador abandon investment protections under treaty and revert to the Calvo Doctrine? That is one of the alternatives being considered by a commission tasked with evaluating the Republic's bilateral investment treaty ("BIT") framework.

According to a member of the commission, Professor Muthucumaraswamy Sornarajah, the commission is likely to recommend that Ecuador terminate its remaining BITs. Professor Sornarajah reportedly recognizes that termination could be risky given that countries do not want to be seen as reneging on their obligations, and that he believes that there is no evidence that BITs attract investment. [1]

The Commission was formed in May 2013. [2] A final report is expected in December 2014, and is already attracting international attention.

In a declaration this month in Caracas, ministers from Bolivia, Cuba, the Dominican Republic, Saint Vincent and the Grenadines, and Venezuela congratulated Ecuador’s initiative and looked forward to the commission’s results. [3] Bolivia and Venezuela are the only ICSID Member States other than Ecuador to denounce the ICSID Convention. [4]

In recent years, Ecuador has taken a series of steps that impact investment protections and arbitration, such as:

• Limiting consent to ICSID jurisdiction regarding disputes in the oil and mining sectors [5]

• Denouncing the ICSID Convention [6]

• Terminating BITs with Cuba, the Dominican Republic, El Salvador, Finland, Guatemala, Honduras, Nicaragua, Paraguay, Romania, and Uruguay [7]

• Procedures to terminate remaining BITs, including National Assembly approval to terminate BITs with Finland, Sweden, France, Germany and the United Kingdom. [8]

At the same time, Ecuador’s National Assembly has voted against terminating BITs with Chile, China, the Netherlands and Venezuela. In any event, most BITs include survival provisions under which any efforts at unilateral termination may not be immediately effective as to investments made prior to termination. [9]

While the government commission appears to question whether investment treaties in fact facilitate investment, a prominent case involving Ecuador illustrates the critical role of investment protections in fostering investment and development. In a dispute related to the Quito International Airport Project, a consortium of international investors faced with simultaneous expropriatory acts and steps taken by Ecuador to limit investor access to World Bank arbitration invoked various investor protections. Despite the unprecedented complexity of the crisis, the investors, a group of major international lenders and Ecuadorian officials engaged in several intensive rounds of negotiation, and Ecuador’s affirmation of investment protections and its pre-existing consent to World Bank arbitration were critical factors in the successful outcome. Ultimately, the project generated thousands of jobs, promoted significant development in Quito and its environs, and recently was named the Best Airport in South America by the World Travel Awards. [10]

[1] See “No hay evidencia de que los TBI atraigan la inversión” El Telégrafo, available at http://www.telegrafo.com.ec/noticias/informacion-general/item/no-hay-evidencia-de-que-los-tbi-atraigan-la- inversion.html (“Sin duda hay un riesgo; un país no quiere ser visto como uno que se retracta de sus obligaciones, pero si hay buenas justificaciones para eso debería estar en capacidad de hacerlo…. No hay evidencia que demuestre que los TBI atraen inversión.”).

[2] See Jonathan C. Hamilton and Francisco X. Jijon, “Ecuador Evaluates Investment Treaty Framework.”

[3] Declaration of Caracas of September 10, 2014 available at ww.vtv.gob.ve/articulos/2014/09/10/paises-afectados-por-intereses-transnacionales-crearan- observatorio-del-sur-sobre-inversiones-y-transnacionales-1245.html.

[4] See List Of Contracting States And Other Signatories Of The ICSID Convention, April 11, 2014.

[5]See Comments by Jonathan C. Hamilton, “Ecuador Oil and Mining Arbitration,” Latin America Energy Advisor.

[6]See Jonathan C. Hamilton, “Solving Complex Problems: Crisis Management, Complex Negotiations and the New Quito International Airport.”

[7]See Jonathan C. Hamilton and Francisco X. Jijon, “Ecuador Evaluates Investment Treaty Framework.”

[8]Id.

[9]Id.

[10] See Jonathan C. Hamilton, “Solving Complex Problems: Crisis Management, Complex Negotiations and the New Quito International Airport.”

Starting in 2007, Ecuador pursued a series of steps that impacted investment protections and arbitration.