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Ecuador's Attainment of the Sumak Kawsay and the role assigned to International ArbitrationKatia Fach Gomez

 

Ecuador's Attainment of the Sumak Kawsay and the role assigned to International Arbitration, by Katia Fach Gomez

About the author, Katia Fach Gomez:

  • Professor of Private International Law at Law University, Saragossa (Spain)
  • Member of the Spanish Research Projects DER2009-11 702 (Sub JURI) and e-PROCIFIS (Ref S14/30)
  • Contact details - E-mail: katiafachgomez@gmail.com

INTRODUCTIONKatia Fach Gomez

 

We women and men, the sovereign people of Ecuador...hereby decide to build... a new form of public coexistence, in diversity and in harmony with nature, to achieve a good way of life, the sumak kawsay. (2) - Preamble of the 2008 Ecuadorian Constitution

The Latin temperament has influenced the relationship of some Latin American countries with foreign investors. Although it is very difficult to apply policies and achieve effects common to all Latin American countries, it can be argued that some countries of this region are currently undergoing, as in the past, a very complex connection with international investment, in general, and specifically with mechanisms to resolve investment conflicts. In recent years, some countries like Argentina, Venezuela, Bolivia, and Ecuador have used various legal mechanisms to disengage from an international investment regime that they consider to be too oppressive and biased. (3)

Many of these legal mechanisms, which have thus far achieved varying degrees of legal effect, have focused on getting these countries to disconnect from the International Center for Settlement of Investment Disputes (ICSID). (4) Within this trend, this chapter will focus on analyzing the case of Ecuador, a country that has recently been particularly active and combative against international investment arbitration. The current study of the Ecuadorian position is especially interesting, because it helps to understand the decisions already made by other states, which have similar political tendencies to Ecuador. Additionally, a legal analysis of the latest Ecuadorian provisions on this topic may help to preemptively detect whether and to what extent other Latin American countries, such as Bolivia or Venezuela, have chosen the path traveled by Ecuador.

The current Constitution of Ecuador (5) was approved by referendum on September 28, 2008 (6) and replaces the 1998 Constitution. (7) The text was published on October 20, 2008 in the Official Registry of Ecuador. (8) As Part I of this chapter will explain, the 2008 Ecuadorian Constitution includes Article 422, (9) preventing the Ecuadorian State from ceding its sovereign jurisdiction to international arbitration entities through entering into Treaties or international instruments. This provision is a clear manifestation of the rejection generated in Ecuador by an ex ante and general submission to international tribunals.

1 This article was completed on November 10, 2010, and all sources, including websites, are current. This article will be published in the Yearbook on International Investment Law and Policy.

2 The translator’s note included in the English version of the 2008 Ecuadorian Constitution provided by the Ecuadorian National Assembly states: “Sumak kawsay is a term in the Kichwa language referring to an ancestral Andean concept highlighting the importance of solidarity, community ties, harmony with nature and dignity. It is translated as “buen vivir” in Spanish”. In this regard, another important fact to be taken into account is that Article 2 of the Constitution states that “Spanish, Kitchwa and Shuar are official languages for intercultural ties,” Ecuador CONST. (2008), preamble, fn1, available at: http://documentacion.asambleanacional.gov.ec/alfresco/d/d/ workspace/SpacesStore/d4685c36-75db-452f-944a-8a49665863cd/constitucion_ingles.pdf (last visited April 8, 2011). This English version of the Ecuadorian Constitution is going to be used throughout this chapter.

3 This position has also been advocated recently by a group of scholars coming from developed countries: “States should review their investment treaties with a view to withdrawing from or renegotiating them in light of the concerns expressed above; should take steps to replace or curtail the use of investment treaty arbitration; and should strengthen their domestic justice system for the benefit of all citizens and communities, including investors.” Gus Van Harten, et al., “Public Statement on the International Investment Regime,” September 2, 2010, available at: http://alainet.org/active/40578&lang=es (last visited April 8, 2011).

4 Katia Fach Gomez, “Latin America and ICSID: David versus Goliath?,” 16 Law and Business Review of the Americas 501 (2010).

5 On Ecuador generally, see Andres Mejia Acosta, “Ecuador,” available at: www.freedomhouse.org/uploads/ccr/ country-7169-8.pdf (last visited April 8, 2011).

6 The Carter Center, “Ecuador Constitutional Referendum: Preliminary Statement by The Carter Center,” September 29, 2008, available at: http://www.cartercenter.org/news/pr/Ecuador_093008.html (last visited April 8, 2011).

7 English version of the 1998 Constitution, available at: http://pdba.georgetown.edu/Constitutions/Ecuador/ ecuador98.html (last visited April 8, 2011).

8 Registro Oficial numero 449, de 20 de octubre de 2008, available at: http://www.derechoecuador.com/index.php? option=com_content&task=view&id=4742&Itemid=498 (last visited April 8, 2011).

9 Ecuador CONST. (2008), op. cit, at Art 422.

Additionally, Part I discusses in detail the wording of Article 422, highlighting the doubts and difficulties of interpretation posed by this constitutional provision. Part I finishes by reflecting on two events derived from the approval of Article 422: the denunciation of the ICSID Convention and the denunciation of a number of Bilateral Treaties on the Promotion and Guarantee of Investments (BITs) signed by Ecuador. Part II of this chapter studies some recent judgments of the Ecuadorian Constitutional Court, which have declared many BITs as unconstitutional. A detailed review of these decisions will lead us to make a critical assessment. Part III analyzes the most recent manifestations of the Ecuadorian government regarding international investments. These latest contractual and legislative developments force us to reconsider the real impact that Article 422 of the Constitution is having on Ecuadorian economic life.

A. THE HOSTILITY OF THE ECUADORIAN STATE WITH RESPECT TO INTERNATIONAL ARBITRATION: ORIGIN, INTERPRETATION AND FIRST EFFECTS OF ARTICLE 422 OF THE 2008 CONSTITUTIONKatia Fach Gomez

 
 

This section presents the genesis of Article 422 of the 2008 Ecuadorian Constitution. It also offers an interpretation of its wording and alludes to two important legal consequences that the adoption of this constitution has generated in the area of international investment arbitration.

1. International Arbitration in the 2008 ConstitutionKatia Fach Gomez

 

As did its predecessor (10), the new Ecuadorian Constitution generally supports arbitration as a valid mechanism for alternative dispute resolution. Thus, Article 190 – contained in Section VIII, Chapter IV, Title IV of the Constitution, referring to alternative means of conflict resolution – states:

Arbitration, mediation and other alternative procedures for dispute settlement are recognized. These procedures shall be applied subject to the law in those areas where, because of their nature, compromises can be reached. In public bidding processes, legal arbitration shall be accepted after a favorable ruling by the Attorney- General’s Office, in conformity with conditions provided for by law. (11)

Along with this provision, the 2008 Constitution includes in its Title VIII – International Relations – Chapter Two – Treaties and international instruments – with an Article specifically devoted to international arbitration. Article 422 states:

Treaties or international instruments where the Ecuadorian State yields its sovereign jurisdiction to international arbitration entities in disputes involving contracts or trade between the State and natural persons or legal entities cannot be entered into.

The treaties and international instruments that provide for the settlement of disputes between States and citizens in Latin America by regional arbitration entities or by jurisdictional organizations designated by signatories countries are exempt from this prohibition. Judges of the States that, as such or their nationals, are part of the dispute cannot intervene in the above.

In the case of disputes involving the foreign debt, the Ecuadorian State shall promote arbitration solutions on the basis of the origin of the debt and subject to the principles of transparency, equity, and international justice. (12)

During the drafting process of the new Constitution, Article 422 was especially discussed by the Committee on Sovereignty, International Relations and Latin American Integration (Mesa de Soberania, Relaciones Internacionales e Integracion Latinoamericana). Based on diverse statements issued by the committee’s assembly members, resentment towards previous Ecuadorian governments can be felt, on the basis that they insufficiently weighed the interests of the Ecuadorian population and signed agreements that were detrimental to the country. Against this controversial past, the Assembly members – mostly belonging to President Correa’s political party – deemed Article 422 as the appropriate mechanism to protect the Ecuadorian people. (13)

A detailed analysis of the various paragraphs of Article 422 will be made below, for the purpose of proposing its appropriate meaning and interpretation.

a) “Treaties or international instruments where the Ecuadorian State yields its sovereign jurisdiction to international arbitration entities in disputes involving contracts or trade between the State and natural persons or legal entities cannot be entered into.”

While the aforementioned discussion of the Ecuadorian Constituent Assembly could lead to the conclusion that ceding sovereignty to international arbitration in any case is totally unacceptable, the reality is that Article 422.1 has a more limited scope of application than initially thought.

First, the provision refers only to “international treaties and instruments” as the legal mechanisms that must not cede sovereignty to international arbitration entities. That is, the Constitution is impeding both the state from including an offer in their BITs to arbitrate in the supra-regional sphere and from Ecuador becoming in the future a member of international organizations that impose this type of arbitration. Furthermore, the wording of Article 422.1 is not preventing the Ecuadorian State from submitting to international arbitration entities through mechanisms other than treaties or international instruments. As seen in the literature and international practice, the submission of a State to international arbitration can result from other intentions of the state, such as admitting international arbitration in a national law or in a contract negotiated with a foreign investor. (14)

Secondly, another aspect to consider is that Article 422.1 states that “disputes involving contracts or trade” will not be submitted to arbitration. This wording does consider that international arbitration would be allowed with respect to disputes of another nature, which in turn relates to the controversial question of how to categorize claims arising from complex international investments. Taking into account the wording of Article 422, it could be argued that the recourse to international arbitration would remain an option with respect to treaty claims. (15) Consequently, an analysis of Article 422.1 leads to the conclusion that this constitutional provision has gaps in comparison to the radical position of the Ecuadorian Constituent Assembly on this matter. It seems that this dissonance between the intention and the legislative reality was not foreseen at the time by the drafters of the Ecuadorian Constitution. This is understandable, given the complexity and technicality characterizing the international investment law and international arbitration. (16) Similarly, however, it can also be described as troublesome, since imprecision can bring unpredictable results in the legal and economic spheres.

b) “The “treaties and international instruments that provide for the settlement of disputes between States and citizens in Latin America by regional arbitration entities or by jurisdictional organizations designated by signatory countries are exempt from this prohibition. Judges of the States that, as such or their nationals, are part of the dispute cannot intervene in the above.”

Article 422.2 is an exception to the prohibition proclaimed in Article 422.1. As it will be explained below, the terminology used in Article 422.2 raises several questions of interpretation. Since the Constituent Assembly’s discussion records do not clarify what the real intention of the Assembly was by using this terminology, this is a provision, which is still very open to legal debate.

Regarding the use of the term “citizens,” one might think that the Constitution is only referring to natural persons and thus does not include legal persons. However, this interpretation would be inconsistent with the following reality: most of the claims based on international Treaties or agreements and pursued in the field of international investment are filed by companies. It is therefore understood that, notwithstanding the term used, the Constitution is also referring to legal persons. It would have been probably more appropriate to repeat the terms used in Article 422.1 – “natural persons or legal entities” – than to use other terms such as “investor” (17) or to refer to some internal provision where the notion of citizen was defined as broadly as the aforementioned.

In this context, the reference to “in Latin America” is also controversial. Initially, one might think that it only refers to a Latin American citizen. However, if the Constitution only refers to disputes between a Latin American state and Latin American citizens, the typical case of an international arbitration dispute that in reality has arisen against Ecuador would be left out of the authority of Article 422.2, i.e., a claim initiated by a non-Latin American investor. It seems reasonable to conclude, therefore, that the reference to “in Latin America” is solely demanding that the dispute be resolved in Latin America, regardless of the nationality of the claimant or the place where the controversy has arisen. (18) In relation to the geographical element, the notion of Latin America is not clear in the Ecuadorian constitution. That is, whether or not the defining element is the linguistic, anthropological, cultural or political aspect.

10 Article 191: “The exercise of the judicial power corresponds to the organs of the Judicial Function. Unity of jurisdiction is established. There shall be justices of the peace, responsible for equitably deciding individual, community or neighbor conflicts, in accordance with the law. Arbitration, mediation and other alternative procedures for conflict resolution are recognized, subject to the law.” (El ejercicio de la potestad judicial correspondera a los organos de la Funcion Judicial. Se establecera la unidad jurisdiccional. De acuerdo con la ley habra jueces de paz, encargados de resolver en equidad conflictos individuales, comunitarios o vecinales. Se reconoceran el arbitraje, la mediacion y otros procedimientos alternativos para la resolucion de conflictos, con sujecion a la ley.) available at: http://www.oup.com/online/us/law/oceanalaw/?view=usa#ccwo (last visited April 8, 2011); available at: http:// pdba.georgetown.edu/constitutions/ecuador/ecuador.html (last visited April 8, 2011).

11 Ecuador CONST. (2008), op. cit., Art 190.

12 Ecuador CONST. (2008), op. cit., Art 422.

13 The Assemblywoman Maria Augusta Calle declared that: "Article 8 (now 422) contains an aspiration of great national endorsement, as a result of the abuses that have tarnished the legal sovereignty of Ecuador. Specifically, this rule provides that agreements or treaties that require the Ecuadorian state to cede jurisdiction to international arbitration bodies in contractual or commercial matters can not be held. Historically, Ecuador has signed treaties that have been considered detrimental to the interests of the country, because they transfer to supranational arbitration bodies the jurisdiction in cases of disputes arising by contractual or commercial relationships with supranational companies and, apparently, in these treaties, states are placed at the same level as a commercial company." (author’s translation)(Oficio No. 017-AC-M9-P de 16 de abril de 2008, www.asambleanacional.gov.ec).

Additionally: " The first paragraph of this provision states that the Ecuadorian government will not give sovereign jurisdiction in case of agreements with private natural or legal persons. That is the spirit of the first paragraph, i.e. an agreement made with a U.S. multinational company must abide by the Ecuadorian legal norms, that is a desire to exercise sovereignty over international conventions" (author’s translation) (Acta de la discusion de la Sesion No. 51 de 20 de mayo de 2008, www.asambleanacional.gov.ec).

The Assemblyman Atarihuana Geovanny stated that: "That is why tools such as the famous ICSID to protect foreign investment, should be rejected by the people. And if ever a government, not committed to its people but with other interests, signed a treaty, we need to denounce the treaty. It is not ideological positions or dogmas, but facts" (author’s translation)(Acta No. 038 del 22 de Abril de 2008, www.asambleanacional.gov.ec) (last visited April 8, 2011).

14 Campbell McLachlan, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles, (New York: Oxford International Arbitration, 2007), pp. 52-54.

15 Eric Gillman, “The End of Investor-State Arbitration in Ecuador? An Analysis of Article 422 of the Constitution of 2008,” 19 American Review of International Arbitration 269 (2008), p. 295.

16 From my perspective, it seems that this situation has been caused by the complexity inherent to international investment law and international arbitration rather than by the drafter’s willingness to leave loopholes. There is no evidence that the drafters were specialized in the field of international arbitration.

17 The use of the term “national” would not be an improvement, because BITs such as the ones signed between Ecuador-UK and Ecuador-Germany specify in Article 1 that nationals refer only to physical persons. See Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Ecuador for the Promotion and Protection of Investments (BITGB), dated May 10, 1994, Art. 1, available at: http://www.sice.oas.org/Investment/BITSbyCountry/BITs/ECU_UK_1996.pdf (last visited April 8, 2011); Tratado entre la Republica del Ecuador y la Republica Federal de Alemania sobre Fomento y Reciproca Proteccion de Inversiones de Capital (BITG), dated April 1998, Art. 1, available at: http://www.sice.oas.org/ Investment/BITSbyCountry/BITs/ECU_Germany_ger.pdf (last visited April 8, 2011).

18 Gillman raises the possibility that “in Latin America” modifies the notion of “dispute”, in which case the prohibition contained in Article 422.1 could apply to the following -rare- event: Ecuadorian company investing outside of Latin America, trying to arbitrate its claim in a Latin American forum. Gillman, “The End of Investor- State Arbitration in Ecuador? An Analysis of Article 422 of the Constitution of 2008,” op, cit., p. 295.

19 Tratado Constitutivo de la Union de Naciones Suramericanas (UNASUR), dated May 20, 2008, available at: http://www.pptunasur.com/downloads/tratado-constitutivo-UNASUR.pdf (last visited (April 8, 2011). The option that the creation of the regional arbitration court be powered by Ecuador from other form such as the Andean Community is questionable, since Ecuador has recently shown its displeasure in regards to this regional organization. “Ecuador agita foros internacionales”, International Centre for Trade and Sustainable Development, July 2009, available at: http://ictsd.org/i/news/puentes/52300/ (last visited April 8, 2011).

20 In June 2009, at the thirty-ninth Session of the General Assembly of the Organization of American States, Ecuador’s Foreign Minister proposed that UNASUR create an arbitration center, which would allow Latin America to free itself from any foreign tutelage. During his term as temporary president of UNASUR, Rafael Correa has also endeavored to promote this project that limits dispute resolution proceedings to regional forums. “Ecuador Propondra un Nuevo Sistema de Arbitraje Durante su Presidencia en la Unasur,” July 8, 2009, available at: http:// www.hoy.com.ec/noticias-ecuador/ecuador- propondra-nuevo-sistema-de-arbitraje-durante-su-presidencia-enunasur- 357247.html (last visited April 8, 2011); “Ecuador Agita Foros Internacionales,” op. cit.

21 Statements of the prosecutor Diego Garcia in “Otro enfoque a los arbitrajes,” August 20, 2008, available at: http:// www.explored.com.ec/noticias-ecuador/otro-enfoque-a-los-arbitrajes-302802-302802.html (last visited April 8, 2011).

Regarding the reference to “regional arbitral entities,” it is considered connected to recent public statements made by the Ecuadorian government, advocating for the creation of a supranational court of arbitration. This entity, which may arise under the Constitutive Treaty of the Union of South American Nations (UNASUR) (19), would become the alternative to ICSID and other international arbitration mechanisms (20). Namely, a Latin American arbitration entity would have the advantage of “having a different vision, generated by the cultural similarities and the source of legislation, that would enable the arbitral entity to more easily understand the language spoken in Ecuador with regard to legal processes and the legal bases that give rise to disputes.” (21) This potentiation of regionalism in the legal sphere is a manifestation of the importance that the Ecuadorian state grants to Latin American integration in all areas, a central issue of Article 423 of the Constitution. (22)

22 “Article 423. Integration, especially with Latin American and Caribbean countries, shall be a strategic objective of the State. In all integration bodies and processes, the Ecuadorian State shall pledge:

1. To promote economic, equitable, joint and united, and mutually supportive integration; productive, financial, and monetary unity; the adoption of a common international economic policy; the fostering of compensatory policies to overcome regional asymmetries; and regional trade, with emphasis on goods with a high added value.

2. To promote joint strategies for the sustainable management of natural assets, especially the regulation of extraction activities; sustainable energy cooperation and complementation; the conservation of biodiversity, ecosystems, and water; research, scientific development and exchange of knowledge and technology; and the implementation of coordinated food sovereignty strategies.

3. To strengthen the harmonization of national laws, with emphasis on labor, migratory, border, environmental, social, educational, cultural and public health rights and systems, in accordance with the principles of progressivity and non-regressivity.

4. To protect and promote cultural diversity, the exercise of interculturalism, the preservation of the cultural heritage and common memory of Latin America and the Caribbean, as well as the establishment of communication networks and a common market for cultural industries.

5. To propitiate the creation of Latin American and Caribbean citizenship; the free circulation of persons in the region; the implementation of policies that guarantee human rights of the people living along borders and refugees; and the common protection of Latin American and Caribbean citizens in countries of migratory transit and destination.

6. To promote a common defense policy that consolidates a strategic alliance to strengthen the sovereignty of the countries and the region.

7. To favor the consolidation of supranational organizations comprised of the States of Latin America and the Caribbean, as well as the signing of treaties and other international instruments for regional integration.”

Ecuador CONST. (2008), op. cit.

The wording of Article 422.2 does not clarify whether the reference to “regional arbitration entities” also includes an ad hoc tribunal created to resolve a dispute, which complies with the characteristics listed in Article 422.2. Furthermore, the constitutional requirement that “judges of the States that, as such or their nationals, are part of the dispute cannot intervene in the above” can pose terminological difficulties, as the reference to arbitrators is missing. This regulation, preventing an Ecuadorian “judge” from intervening in a case in which Ecuador is a party, is a novelty in relation to regulations such as the ICSID one (23), and would need to have the approval of the other Latin American signatory countries in order to prevail in the regional sphere.

c) “In the case of disputes involving the foreign debt, the Ecuadorian State shall promote arbitration solutions on the basis of the origin of the debt and subject to the principles of transparency, equity, and international justice”

Article 422.3 of the Constitution referring to disputes involving foreign debt has to be read in conjunction with the Final Report on Public Credit Audit (24). This Report, prepared by the Ecuadorian Commission of Public Credit Audit (Comision ecuatoriana de Auditoria Integral del credito publico) (25) was issued in September 2008 and developed at the same time that the National Constituent Assembly was drafting the current Ecuadorian Constitution.

The report has a very strong conclusion, harshly criticizing the previous Ecuadorian governments and the international economic system. This report finds that “the Ecuadorian debt process, during the period between 1976 and 2006, was developed to benefit the financial sector and transnational corporations, visibly affecting the interests of the State.” (26) This report also makes several reflections on the audit of credits, (27) commercial debt, (28) bilateral, (29) and multilateral debt. (30)

It is remarkable that the report specifically criticizes that:

both in the general conditions for World Bank loans and in the agreements signed with the Inter-American Development Bank (IDB) it was established that any dispute between the parties would be submitted to arbitration before an arbitral tribunal, which under the provisions, should be selected in agreement between the parties and whose place and date should be set by the deciding arbitrator, who in turn would be part of an arbitral tribunal which included a representative of the Bank and the borrower. However, in some loan agreements, particularly those that were financed by the IDB such as PRAT, PROMSA, PSA, PROMECEB, WEBS AMIGAS, FISE, it was established that the arbitral tribunal would have its venue in Washington, place where the headquarters of the IDB are located. Therefore, the State must submit to a court that was outside the Ecuadorian national legislation and judiciary branch. (31)

Taking into account the above, it is reasonable to think that, when Article 422.3 of the Constitution was created, its intention was indicate that, after the entry into force of the new Constitution, the conflicts arising from Ecuador's domestic debt could only be resolved in Ecuador. Although not expressly stated, it is understood that this interpretation prohibiting the State to remain bound to international arbitrations in other states is consistent with the prevailing political vision in 2008. In an issue as sensitive as external debt, the Constituent Assembly considered that the disputes, for the sake of Ecuador, have to be resolved with confidence that the constitutional principles of transparency, equity and international justice were properly applied.

The verb “promote” used in Article 422.3 refers to a mere obligation of means, which is in harmony with the voluntary nature of arbitration. Therefore, it can be understood that if the Ecuadorian State unsuccessfully promotes an arbitration in Ecuador, the recourse to the Ecuadorian courts would be the only acceptable alternative for the Ecuadorian State. In line with this, the report's recommendations propose civil and criminal actions be initiated in the Ecuadorian courts against the internal and external alleged responsible parties of illegal acts causing Ecuador’s debt from 1976 to 2006. (32)

23 “The majority of the arbitrators shall be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute; provided, however, that the foregoing provisions of this Article shall not apply if the sole arbitrator or each individual member of the Tribunal has been appointed by agreement of the parties.” Convention on the settlement of investment disputes between states and nationals of other states (2006), art. 39, available at: http://icsid.worldbank.org/ICSID/StaticFiles/basicdoc_en-archive/22.htm (last visited April 8, 2011) [hereinafter ICSID Convention].

24 Informe Final de Auditoria Integral del Credito Publico, issued by the Comision de Auditoria Integral del Credito Publico, available at: http://www.hoy.com.ec/wp-content/uploads/2008/11/resumen_ejecutivo_versionpresiedente. htm (last visited April 8, 2011).

25 Agency under the Ministry of Economy and Finance created in July 9, 2007, available at: http:// www.auditoriadeuda.org.ec/ (last visited April 8, 2011).

26 El proceso de endeudamiento del Ecuador, durante el periodo comprendido entre 1976 y 2006, se desarrollo en beneficio del sector financiero y empresas transnacionales, afectando visiblemente los intereses de la Nacion.” Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation).

27 This final report affirms that: " There have been identified some characteristics and constant adverse determinants, that even restrict any act of defense that the country would try to safeguard their rights, such as the interference in domestic affairs and the consequent injury to the sovereignty; waiver of sovereign immunity by the country, waiver of jurisdictional immunity and of the right to defense and claim; abusive provisions that violate the rights of a sovereign country...Multilateral agencies, foreign banks and other creditors, with the participation of national authorities and officials have imposed their conditions on the country, forcing to a higher level of debt and successive processes of "restructuring" that generated: non-transparent transfer of private debts to the State; anticipated and undue exchanges and direct foreign operations without track record in Ecuador, and also caused diversions and distortions in the allocation of credits to meet the payment requirements of foreign private creditors ....There is evidence of a violation of general principles of law that are source of public international law, and of legislation from the United States and other creditor countries, that was applicable to the debt contracts. There have been ignored some international pacts and generally-accepted legal doctrine referring to the following concepts: autonomy, odious debt, good faith, hardship, force majeure, threats, force, fraud and error." Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation).

28 The report denounces that: "It has been found evidence of illegality and unlawfulness in multiple renegotiations with private international banks, that were detrimental to Ecuador and favorable to the interests of creditors ... The IMF was actively involved in all the agreements that concluded the country with the International private banking, through its binding and favorable report. It was conditional on a standby agreement that meant complicity with private creditors and an unacceptable encroachment on the sovereign decisions on economic and social policy...The unilateral increase in the interest rates to exorbitant levels since 1979 meant a fundamental change of circumstances to which contracts were linked. This violated equity, which is one of the principles of common law to which the contracts were subject". Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation).

29 In this sense, it is stated that: " The Paris Club, despite not having legal personality, imposed some conditions to Ecuador within the negotiations, such as submission to the supervision of the IMF. In order to do that, the pressure of the group of creditor countries was used, taking advantage of the fragility of the Ecuadorian economic and social development in those times and the lack of expertise and fortitude of the negotiating teams" Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation)

30 The final report criticizes that: " Multilateral lending agencies such as IMF, WB and IDB, distracted the mission stated in their respective Articles of Agreement and promoted unfair debt systems with its member countries, having a powerful ally to Project private creditors...Multilateral credits established conditionings that led to: the weakening of the state and its capacity for planning; structural adjustment; deregulation; privatization and transfer of powers to the private sector that were prejudicial to the interests of the nation, following a matrix imposed on developing countries. This generated continuing political instability and government confrontations with social sectors...Conditions imposed by multilateral lending limited the enjoyment of fundamental rights of individuals and peoples, including the rights to health, education, employment, food and healthy environment. This meant that the living conditions of population (especially indigenous peoples, peasants and Africans, in particular of women) did not improve, on the contrary, poverty deepened, migration increased and environmental conditions deteriorated". Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation).

31 Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation).

32 Comision de Auditoria Integral del Credito Publico, “Informe Final de Auditoria Integral del Credito Publico,” op.cit., (author’s translation).

2. Denunciation of the ICSID Convention and the BITsKatia Fach Gomez

 

The approval of the 2008 Constitution has prompted the Ecuadorian government to take two drastic measures regarding international investments: denunciation of both the ICSID Convention and of an important number of its existing BITs.

a. ICSID ConventionKatia Fach Gomez

 

In 2007, Ecuador notified ICSID that, following Article 25.4 of the ICSID Convention (33), it would not consent to the submission to the ICSID jurisdiction of “disputes that arise in matters concerning the treatment of an investment in economic activities related to the exploitation of natural resources, such as oil, gas, minerals or others” (34) After adopting the 2008 Constitution, the Ecuadorian government requested the Legislative and Audit Commission (Comision Legislativa y de Fiscalizacion) to denounce the ICSID Convention, because it violated Article 422 of the Ecuadorian Constitution and, therefore, the interests of the country. (35) This request for withdrawal from the ICSID Convention was adopted on June 12, 2009 with fifty votes in favor, four against and five abstentions. (36) On July 2, 2009, President Rafael Correa issued Executive Decree No. 1823, which proceeded to denounce and therefore terminate the ICSID Convention. (37) The denunciation was transmitted to the ICSID Secretary General on July 6, 2009 and, in accordance with Article 71 of the ICSID Convention, (38) it took effect on January 7, 2010. (39)

33 “Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. The Secretary- General shall forthwith transmit such notification to all Contracting States. Such notification shall not constitute the consent required by paragraph (1),” ICSID Convention, op. cit., Art. 25.4.

34 Xavier Andrade Cadena and Marco Tulio Montanes, “Introductory Note to Ecuador’s Notice Under ICSID Article 25(4) by Xavier Andrade Cadena [and] Marco Tulio Montanes,” 47 International Legal Materials 154 (2008)(citing Letter from Maria Espinosa Garces, Ecuador's Foreign Ministry, to Ana Palacio, ICSID's Secretary-General (November 23, 2007)(Cadena and Montanes’s translation)).

35 This ICSID Convention: “violates the prohibition described in section 422 of the Constitution of the Republic. For this reason we also ask you, as established in Article 419 cited above, that the National Assembly approves the denunciation of the ICSID Convention through an appropriate mechanism in order to proceed with notification of this complaint to the appropriate organism.” Oficio No. T.4484-SGJ-09-1431, June 3, 2009, sent to Fernando Cordero Cueva, Presidente de la Comision Legislativa y de Fiscalizacion, available at: http://www.aebe.com.ec/data/ files/noticias/Noticias2009/Leyes/Denuncia_Convenio_CIADI.pdf (last visited April 8, 2011)(author’s translation).

36 “Pleno aprobo denuncia para la salida del Ecuador del Ciadi,” El Nuevo Empresario, June 12, 2009, available at: http://www.elnuevoempresario.com/noticias_9177_pleno-aprob-denuncia-para-la-salida-del-ecuador-del-ciadi.php (last visited April 8, 2011).

37 “Decreto Ejecutivo No. 1823,” July 2, 2009, available at: http://www.derechoecuador.com/index.php? option=com_content&task=view&id=5048&Itemid=540 (last visited April 8, 2011).

38 “Any Contracting State may denounce this Convention by written notice to the depositary of this Convention. The denunciation shall take effect six months after receipt of such notice.” ICSID Convention, op. cit., Art 71.

39 “Ecuador becomes second state to exit ICSID; approximately two-thirds of Ecuador's BIT claims were ICSIDbased,” Investment Arbitration Reporter, July 17, 2009, available at: http://www.iareporter.com/articles/EcuadorExit (last visited April 8, 2011).

b. BITsKatia Fach Gomez

 

Following the entry into force of the 2008 Constitution, President Correa also requested the National Assembly to denounce various Ecuadorian BITs because they contained “clauses contrary to the Constitution and detrimental to national interests, such as submitting Ecuador to international arbitration.” (40) The National Assembly returned this 2009 request to the Ecuadorian President, on the grounds that the National Assembly’s denunciation required a prior ruling of the Constitutional Court. (41) In the next section of this chapter, we will analyze what the response of the Constitutional Court was when President Correa presented his new 2010 request for declaration of unconstitutionality.

B. ANALYSIS OF THE 2010 JUDGMENTS OF THE ECUADORIAN CONSTITUTIONAL COURTsKatia Fach Gomez

 

This section analyzes in detail the unconstitutionality judgments issued from the second half of 2010 by the Ecuadorian Constitutional Tribunal regarding various Bilateral Investment Treaties.

1. IntroductionKatia Fach Gomez

 

Since June 2010, the Ecuadorian Constitutional Court has begun to issue a series of judgments declaring the unconstitutionality of some articles of the BITs that Ecuador has signed with various States. This chapter is going to focus on the judgments regarding the BITs with Great Britain and North Ireland (BITGB),(42) Germany (BITG),(43) China (BITC), (44) Finland (BITFi), (45) Sweden (BITS), (46) the Netherlands (BITN) (47) and France (BITFr). (48)

These seven judgments (49) have their origin in the aforementioned Official letter (50) that President Rafael Correa wrote on January 6, 2010 to the President of the Constitutional Court, requesting that the court issue a judgment constitutionality denouncing these BITs. (51) The basis for this request is Article 438.1 of the Ecuadorian Constitution.(52) The request of the President of Ecuador declared that several BITs “contain clauses contrary to the Constitution of the Republic and harmful to the national interests, such as the one submitting the Ecuadorian State to international arbitration to resolve disputes regarding these BITs, ignoring the Ecuadorian jurisdiction.” (53) In addition, the request criticizes the international arbitral tribunals established under BITs to adjudicate claims against Ecuador because they “do not take into account the Ecuadorian law and understand in a peculiar way the concept of investment, even disregarding domestic law when considering that legislative measures taken by Ecuador have been arbitrary or discriminatory.” (54)

40 Oficio No. T 4766-SGJ-09-2216, available at: http://www.derechoecuador.com

41 Oficio No. T 4766-SNJ-10-21, available at: http://www.derechoecuador.com

42 BITGB, op. cit. footnote 17.

43 BITG, op. cit., footnote 17.

44 Convenio entre el Gobierno de la Republica del Ecuador y el Gobierno de la Republica Popular de China para el Fomento y la Proteccion reciprocos de Inversiones, (BITC), available at: http://www.unctad.org/sections/dite/iia/ docs/bits/china_ecuador_sp.pdf (last visited April 8, 2011).

45 Agreement between the Government of the Republic of Finland and the Government of the Republic of Ecuador on the Promotion and Protection of Investments, (BITFi), available at: http://www.sice.oas.org/Investment/ BITSbyCountry/BITs/ECU_Finland.pdf (last visited April 8, 2011).

46 Acuerdo entre el Gobierno del Reino de Suecia y el Gobierno de la Republica del Ecuador para la promocion y Proteccion reciproca de Inversiones, (BITS), available at: http://www.sice.oas.org/Investment/BITSbyCountry/BITs/ ECU_Sweden.pdf (last visited April 8, 2011).

47 Agreement on the Encouragement and Reciprocal Protection of Investments between the Republic of Ecuador and the Kingdom of the Netherlands (BITN), available at: http://www.sice.oas.org/Investment/BITSbyCountry/BITs/ ECU_Netherlands.pdf (last visited April 8, 2011).

48 Accord entre le Gouvernement de la Republique francaise et le Gouvernement de la Republique de l’Equateur sur l’encouragement et la protection reciproques des investisemments, (BITFr), available at: http://www.sice.oas.org/ Investment/BITSbyCountry/BITs/ECU_France_f.pdf (last visited April 8, 2011). It is expected that in the coming months the Ecuadorian Constitutional Court will issue new judgments on other BITs, such as those signed between Ecuador and Canada, Argentina, Chile, Venezuela, Switzerland and the United States of America. There is no consensus among the sources consulted in the number of BITs that are waiting for the constitutional control. What seems clear is that some BITs, like the Ecuador-Spain, have not yet been questioned by Correa.

49 The judgment on the BITGB is La Corte Constitucional, para el periodo de transicion, Dictamen N.º 020-10-DTICC, Caso N.º 0008-10-TI, June 24, 2010, Registro Oficial N. º 249, available at: http://ita.law.uvic.ca/documents/ EcuadorConstitutionalCourtRulingAug32010.pdf (last visited April 8, 2011) [hereinafter BITGB Judgment]; The judgment on the BITC is La Corte Constitucional, para el periodo de transicion, Dictamen N.º 027-10-DTI-CC, Caso N.º 0004-10-TI, July 29, 2010, Registro Oficial N. º 258, available at: ita.law.uvic.ca/documents/ EcuadorConstitutionalCourtrulingAug172010.doc (last visited April 8, 2011) [hereinafter BITC Judgment]; The judgment of BITFi is La Corte Constitucional, para el periodo de transicion, Dictamen N.º 026-10-DTI-CC, Caso N.º 0001-10-TI, July 29, 2010, Registro Oficial N. º 258, available at: ita.law.uvic.ca/documents/ EcuadorConstitutionalCourtrulingAug172010.doc (last visited April 8, 2011) [hereinafter BITFi Judgment]; The judgment on the BITS is La Corte Constitucional, para el periodo de transicion, Dictamen N.º 029-10-DTI-CC, Caso N.º 0002-10-TI, September 16, 2010, Registro Oficial N. º 294, available at: http://www.derechoecuador.com/ index.php?option=com_content&task=view&id=5881&Itemid=600 (last visited April 8, 2011) [hereinafter BITS Judgment]; The judgment on the BITN is La Corte Constitucional, para el periodo de transicion, Dictamen N.º 030-10-DTI-CC, Caso N.º 0005-10-TI, September 16, 2010, Registro Oficial N. º 294, available at: http:// www.derechoecuador.com/index.php?option=com_content&task=view&id=5881&Itemid=600, (last visited April 8, 2011) [hereinafter BITN Judgment]; The judgment on the BITFr is La Corte Constitucional, para el periodo de transicion, Dictamen N.º 031-10-DTI-CC, Caso N.º 0007-10-TI, September 16, 2010, Registro Oficial N. º 294, available at: http://www.derechoecuador.com/index.php?option=com_content&task=view&id=5881&Itemid=600, (last visited April 8, 2011) [hereinafter BITFr Judgment]; the judgment on the BITG (hereinafter, JBITG) can be found in XXXXXXXXXXXX (last visited April 8, 2011) [hereinafter BITG Judgment]; [maybe: La Corte Constitucional, para el periodo de transicion, Dictamen N.º 041-10-DTI-CC, Caso N.º 0011-10-TI, (November 25, 2010)]

50 Oficio No. T 4766-SNJ-10-21, op.cit.

51 “Denunciation of a treaty that has been adopted shall pertain to the President of the Republic. In the event of denunciation of a treaty adopted by the citizenry in a referendum, the same procedure that adopted the treaty shall be required.” Ecuador CONST. (2008), op. cit., Art. 420; “Article 419. The ratification or denunciation of international treaties shall require prior approval by the National Assembly in the following cases:

1. When referring to territorial or border delimitation matters.

2. When forging political or military alliances.

3. When they involve a commitment to enact, amend or repeal a law.

4. When they refer to the rights and guarantees provided for in the Constitution.

5. When they bind the State’s economic policy in its National Development Plan to conditions of international financial institutions or transnational companies.

6. When they commit the country to integration and trade agreements.

7. When they attribute powers of a domestic legal nature to an international or supranational organization.

8. When they compromise the country’s natural heritage and especially its water, biodiversity and genetic assets.”

Ecuador CONST. (2008), op. cit., Art. 419.

52 “Article 438. The Constitutional Court shall issue a prior and binding ruling of constitutionality in the following cases, in addition to those stipulated by the law:

1. International treaties, prior to their ratification by the National Assembly.

2. Calls to referendums nationwide or of decentralized autonomous governments.

3. Objections of unconstitutionality presented by the President of the Republic in the processing of drafting laws”

Ecuador CONST. (2008), op. cit., Art. 438.

53 La Corte Constitucional, para el periodo de transicion, Dictamen N.º 027-10-DTI-CC, Caso N.º 0004-10-TI, available at: http://ita.law.uvic.ca/documents/EcuadorConstitutionalCourtrulingAug172010.doc (last visited April 8, 2011)(author’s translation).

54 La Corte Constitucional, para el periodo de transicion, Dictamen N.º 027-10-DTI-CC, Caso N.º 0004-10-TI, op. cit.

2. Citizen Interventions Before the Constitutional CourtKatia Fach Gomez

 

The content of President Correa’s request has generated much controversy in Ecuador. Exercising the option provided in Article 111.2.b of the 2009 Organic Law of Jurisdictional Guarantees and Constitutional Control (Ley Organica de Garantias Jurisdiccionales y Control Constitucional (LOGJCC)), (55), the legal representative of the National Federation of Ecuadorian Chambers of Commerce has filed a written statement to the Constitutional Court, expressing its dissatisfaction with the process initiated by the Ecuadorian President. These Chambers of Commerce consider that Article 422.1 of the Ecuadorian Constitution, which is the basis of the presidential request, is ineffective in achieving the declaration of unconstitutionality of the BITs. It is argued, questionably, that this article’s wording shall not prevent the conclusion of BITs, but merely prevents the conclusion of commercial contracts between the state and a foreign investor. (56)

The Chambers of Commerce also remind the Ecuadorian Constitutional Court of additional issues: a denunciation by Ecuador of its BITs has to comply with certain requirements contained therein, such as the denunciation must be notified one year in advance and that, despite the denunciation, investors have a significant number of additional years of protection. 57 In addition, Ecuador has won most of the cases that have been brought against the State before ICSID (58) or “important agreements” (59) have been reached. For all of these reasons, the Chambers of Commerce asked the Court not to issue the judgment requested by the President. They also raise the question as to why Correa didn’t denounce the BITs signed by Ecuador with other countries such as Cuba, Bolivia, Peru, Paraguay, El Salvador, Spain and Romania. Additionally, the Chambers of Commerce request the Constitutional Court to suggest to the executive branch adopting a more moderate approach, such as the renegotiation of BITs through the diplomatic channel (60) or, if unsuccessful, resort to an arbitration in order to resolve the differences over the content and scope of the BITs. (61)

Regarding the BITGB, an Ecuadorian lawyer has also filed an individual brief before the Constitutional Court, (62) which contains the following critical remarks on the presidential request: the Ecuadorian Constitution itself supports arbitration and wants to promote capital flows; the principle of good faith obliges States to respect their commitments, respect that must be maintained except in exceptional circumstances which are not considered to concur in this case, and the Court has to indicate whether Article 422 of the Constitution also affects obligations previously acquired by the Ecuadorian state. (63)

55 Article 111: "Constitutional review process. The process of constitutional review of international treaties is subject to the following rules:

b) Once the reporting judge has been appointed, there should be a publication in the Ecuadorian Official Register and in the web site of the Constitutional Court, so that within ten days, counting from the date of publication, any citizen may intervene defending or challenging the parcial or total constitutionality of the respective international treaty. "b) Una vez efectuado el sorteo para la designacion de la jueza o juez ponente, se ordenara la publicacion a traves del Registro Oficial y del portal electronico de la Corte Constitucional, para que dentro del termino de diez dias, contados a partir de la publicacion, cualquier ciudadano intervenga defendiendo o impugnando la constitucionalidad parcial o total del respectivo tratado internacional.”

Ley Organica de Garantias Jurisdiccionales y Control Constitucional (LOGJCC), Registro Oficial Suplemento No. 52 de 22 de octubre de 2009, available at: (last visited http://www.derechoecuador.com/index.php? option=com_content&task=view&id=5198&Itemid=554 April 8, 2011).

56 Article 422 does not resolve the problem of limitation of sovereignty and does not prohibit the celebration of international treaties on investment protection, despite what is commonly believed. Disputes arising out of the violation of a treaty are usually generated by sovereign decisions of a state that are not contained in contracts, but rather in laws or administrative acts. These non-contractual acts are not binding (because they are neither contained in a contract nor derived from one) can lead to internationally wrongful acts. These acts are contractual in nature, while trade disputes are disputes arising from contractual actions or omissions. National rules are generally applied to contractual or commercial disputes International law is applied to disputes for violation of a treaty. It is clear that Article 422 relates to contractual or commercial disputes derived from a treaty. "“El articulo 422 no resuelve el problema de la limitacion de la soberania y tampoco prohibe la celebracion de tratatos internacionales de proteccion de inversiones, a pesar de lo que comunmente se cree. Las controversias derivadas de violacion de un tratado usualmente nacen de decisiones soberanas de un Estado no contenido en contratos, sino mas bien en leyes o actos administrativos. Esos actos no contractuales (porque no estan en un contrato ni se derivan de uno) pueden dar origen a hechos internacionalmente ilicitos; esos actos por su naturaleza son extracontractuales, mientras que las controversias comerciales son disputas que nacen de acciones u omisiones contractuales. A las disputas contractuales o de indole comercial generalmente se les aplica normas de derecho interno. A las disputas por violacion de un tratado se les aplica normas de derecho internacional. Es claro que el articulo 422 se refiere a disputas contractuales o de indole comercial, derivadas de un tratado.” La Corte Constitucional, para el periodo de transicion, Dictamen N.º 041-10-DTI-CC, Caso N.º 0011-10-TI, (November 25, 2010) (author’s translation). This same argument is repeated for all the questioned BITs. See, for example, BITGB, op.cit.

57 See section C.1 below.

58 Ecuador has so far been the defendant in 14 ICSID cases. Among them, there are six still pending: Corporacion Quiport S.A. and others v. Republic of Ecuador, ICSID Case No. ARB/09/23; Repsol YPF Ecuador, S.A. and others v. Republic of Ecuador and Empresa Estatal Petroleos del Ecuador (PetroEcuador), ICSID Case No. ARB/08/10; Perenco Ecuador Limited v. Republic of Ecuador and Empresa Estatal Petroleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6; Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5; Murphy Exploration and Production Company International v. Republic of Ecuador, ICSID Case No. ARB/08/4; Tecnicas Reunidas, S.A. and Eurocontrol, S.A. v. Republic of Ecuador, ICSID Case No. ARB/06/17.

One has been settled: IBM World Trade Corp. v. Republic of Ecuador, ICSID Case No. ARB/02/10.

Three have been discontinued: City Oriente Limited v. Republic of Ecuador and Empresa Estatal Petroleos del Ecuador (Petroecuador), ICSID Case No. ARB/06/21; Tecnicas Reunidas, S.A. and Eurocontrol, S.A. v. Republic of Ecuador, ICSID Case No. ARB/06/17; Noble Energy Inc. and MachalaPower Cia. Ltd. v. Republic of Ecuador and Consejo Nacional de Electricidad, ICSID Case No. ARB/05/12;

There have been three awards favorable to Ecuador: Empresa Electrica del Ecuador, Inc. (EMELEC) v. Republic of Ecuador, ICSID Case No. ARB/05/9; Duke Energy Electroquil Partners and Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19; M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6.

There has been one an award favorable to the investor: Repsol YPF Ecuador S.A. v. Empresa Estatal Petroleos del Ecuador (Petroecuador), ICSID Case No. ARB/01/10.

Additionally, there have been two cases arbitrated at the London Court of International Arbitration. Ecuador has won the case EnCana Corporation v. Republic of Ecuador, 45 ILM 665, February 3, 2006, available at: http:// www.jstor.org/stable/20695607 (last visited April 8, 2011), governed by the UNCITRAL rules, and has lost the case O c c i d e n t a l E x p l o r a t i o n v. R e p u b l i c o f Ecuador, a v a i l a b l e a t : www. b i i c l . o r g / f i l e s / 3914_2004_occidental_v_ecuador.pdf (last visited April 8, 2011).

Regarding some of these cases: Susan D. Franck, “International Decision: Occidental Exploration & Production Co v. Republic of Ecuador,” 99 American Journal of International Law 675 (2005); Paul Connors, “Investor-State Arbitration. ICSID Suggests Caution in Resting Treaty Claims on Disputes over which Tribunals can Decline Jurisdiction. Duke Energy Eletroquil Partners & Elecroquil S.A. v. Republic of Ecuador,” 32 Suffolk Transnational Law Review 503 (2009); Anibal Sabater, “Extraterritorial Jurisdiction in Civil, Commercial and Investment Matters,” 14 ILSA Journal of International and Comparative Law 461 (2008).

59 It is understood that this ambiguous expression is referring to ways of resolving disputes other than the issuance of an arbitral award.

60 This possibility is expressly stated in Article 112 of the LOGJCC: “Effects of judgments and opinions. Judgments and opinions have the same effects than those of the abstract constitutionality in general and the following in particular: 4. When declaring the unconstitutionality of an already ratified treaty, the State must denounce the treaty before the competent authority or to promote the renegotiation of the treaty, or promote its amendment, alteration or constitutional change," (author’s translation) LOGJCC, op. cit., Art 112.

61 It is understood that this is referring to the interstate arbitral mechanism included in the BITs.

62 Mr. Jose Gustavo Prieto Munoz presents himself as an Ecuadorian lawyer specialized in commercial law, see http://gpmabogados.com/informacion.html (last visited April 8, 2011);

63 BITGB Judgment, op. cit., at pp. 8 and 9.

3. Formal Control of the BITsKatia Fach Gomez

 

In the seven judgments analyzed, the considerations and rationale of the Ecuadorian Constitutional Court begin asserting themselves over the President's request. This competence is based on Articles 429 and 438.1 of the Constitution; Articles 75.3.d, 107 and the third Transitional Provision of the LOGJCJ; and Articles 69 and following of the Rules of the Competence Process of the Constitutional Court (Reglamento de Sustanciacion de Procesos de Competencia de la Corte Constitucional). The fact that, at the time of being signed, the now questioned BITs did not transgress any constitutional provision is affirmed by the Court, (64) since the Ecuadorian Constitution in force each time, the 1996 and the 1998 Constitution, (65) did not contain a provision similar to the current Article 422 of the 2008 Constitution. However, the Court states that the need for constitutional review of these BITs is currently justified by Article 417 of the new Constitution, which affirms that: “the international Treaties ratified by Ecuador shall be subject to the provisions set forth in the Constitution.” (66) Likewise, Article 425 declares that: “The order of precedence for the application of the regulations shall be as follows: the Constitution; international treaties and conventions; organic laws; regular laws…In the event of any conflict between regulations from different hierarchical levels, the Constitutional Court, judges, administrative authorities and public servants, it shall be settled by the application of the standard of higher order of precedence.” (67) In its judgment regarding the BITN, the Constitutional Court significantly states that

addressing the issue of constitutional control of public authorities in any contemporary state implies, in general terms, reflecting upon the relationship between democracy and fundamental guarantees, i.e., on the connections between that form of government whose basic, but, of course, not unique, principle is the rule of majority rule and, on the other hand, the existence of a clear and serious mechanism to prevent lower-level provisions from violating the rules embodied in the Constitution. (68)

64 BITC Judgment, op. cit., at p. 21; BITGB Judgment, op. cit., at p. 14; BITG Judgment, op. cit., at p. 18; BITS Judgment, op. cit., at p. 18; BITN Judgment, op. cit., at p. 28; BITFr Judgment, op. cit., at p. 43.

65 Ecuador CONST., (1998), op. cit.; Ecuador CONST. (1996),

66 Ecuador CONST. (2008), op. cit. Art 417. In the same sense, see Articles 424 and 425 of the 2008 Ecuadorian Constitution.

67 Ecuador CONST. (2008), op. cit. Art 425.

68 ¨A partir de este presupuesto, analizar el tema del control de constitucionalidad de los poderes publicos en cualquier Estado contemporaneo impone, en terminos genericos, reflexionar acerca de las relaciones entre democracia y garantias fundamentales, es decir, sobre las vinculaciones entre aquella forma de gobierno cuyo principio basico, no unico, por cierto, es la regla del gobierno de la mayoria y un mecanismo claro y serio para impedir que normas de menor jerarquia, auspicien la violacion de las normas consagradas en el texto constitucional¨, available at: http://www.derechoecuador.com/index.php?option=com_content&task=view&id=5881&Itemid=600

4. Material control of BITsKatia Fach Gomez

 

As will be presented, the seven judgments under review consider that at least one provision of each of the questioned BITs is unconstitutional. In reaching this decision, the Ecuadorian Constitutional Court developed a number of “Considerations and Grounds” (Consideraciones y Fundamentos), which will be presented below.

a) Consideration 1Katia Fach Gomez

 

In relation to disputes between the Republic of Ecuador and an investor of another Contracting State, these seven judgments conclude by declaring the unconstitutionality according to Article 422.1 of the Ecuadorian Constitution of the BITs provision, or, at least, of one of it paragraphs, that allows the submission of a dispute to international arbitration.

Analyzing these treaties individually, the Constitutional Court leans in most cases towards declaring the entire tenor of these provisions unconstitutional. Namely, all of Article 8 of the BITGB (69) referring to ICSID conciliation and arbitration is deemed unconstitutional by the Court, as “it implies foregoing state jurisdiction, which is considered one of the most important manifestations of territorial sovereignty and refers to the administration of justice by State courts.” (70) The same conclusion was reached by the Court with respect to Article 10 of the BITG. (71) In its judgment, the Court also explicitly recalls that the Ecuadorian state withdrew from ICSID through Executive Decree 1823. (72) The Court justifies the unconstitutionality of the entire Article 11 of the BITN arguing inter alia that:

Decisions arising from these ad hoc tribunals could cause serious damage to the Ecuadorian State, which as a party to this Treaty represents the interests of all inhabitants of our country. In that sense, it would violate Article 416.12 of the Ecuadorian Constitution, stating that: Ecuador’s relations with the international community shall respond to the interests of the Ecuadorian people, to which those persons in charge of these relations and their executors shall be held accountable, and as a result: it fosters a new trade and investment system among States, one that is based on justice, solidarity, complementariness, the creation of international mechanisms to monitor multinational corporations and the establishment of an international financial system that is fair, transparent and equitable. It rejects converting disputes with foreign private companies into conflicts between states. (73)

69 “Reference to International Centre for Settlement of Investment Disputes. Each contracting party hereby consents to submit to the International Centre for the Settlement of Investment Disputes (hereinafter referred to as ‘the Centre’) for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States opened for signature at Washington on 18 March 1965 (to which they are both parties) any legal dispute arising between that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.” BITGB, op. cit., Art. 8.

70 “Implica renunciar a la jurisdiccion del Estado, considerada como una de las manifestaciones mas importantes de la soberania territorial y que se refiere a la administracion de justicia por tribunales del Estado.” (It implies giving up the jurisdiction of the State, considered as one of the most important signs of the territorial sovereignty and it refers to the administration of justice by state courts.) (author´s translation). BITGB Judgment, op. cit. Despite what can be concluded from reading this strong statement, Article 8 of BITGB does include a broad reference to the resolution of these conflicts “by means of local remedies or otherwise.” BITGB, op. cit., at p. 15.

71 “former.” BITG, op. cit., Art. 10.

72 BITG Judgment, op. cit., at p. 16; see also “Decreto Ejecutivo numero 1823,” published in Registro Oficial 632, July 13, 2009.

73 “Aquellas resoluciones provenientes de estos Tribunales ad hoc podrian generar serios perjuicios al Estado ecuatoriano, el mismo que como parte del presente Tratado representa a los intereses de todos los habitantes de nuestro pais. En aquel sentido se atentaria al articulo 416.12 de la constitucion de la Republica que determina: las relaciones del Ecuador con la comunidad internacional responderan a los intereses del pueblo ecuatoriano, al que le rendiran cuenta sus responsables y ejecutores, y en consecuencia: Fomenta un nuevo sistema de comercio e inversion entre los Estados que se sustente en la justicia, la solidaridad, la complementariedad, la creacion de mecanismos de control internacional a las corporaciones multinacionales y el establecimiento de un sistema financiero internacional, justo, transparente y equitativo. Rechaza que controversias con empresas privadas extranjeras se conviertan en conflictos entre Estados.” BITN Judgment, op. cit., at p. 28.

Articles 8 of the BITS (74) and 9 BITFr (75) are also considered unconstitutional and the Court declares that the exception of 422.2 of the Constitution regarding regional integration cannot be applied to these articles. In its judgment on BITS the Court finds that BITs are not engaged to obtain a regional integration process, but it is an international instrument that commits states, individuals and companies of the Republic of Ecuador and the Government of the Kingdom of Sweden, in matters related to investments. For this reason, it has no basis in the above-mentioned constitutional provision. (76)

Article 10 of the BITFr (77) creates some uncertainty. Although initially the Constitutional Court only appears to question the second and subsequent sections of this article, and save the first paragraph referring to amicable dispute settlement, the Court’s final decision proclaims the unconstitutionality of Article 10 without excluding any of its sections. (78) Finally, the Court takes a position regarding the BITC that is different to the one defended in relation to the rest of the aforementioned BITs. The Constitutional judgment considers that paragraphs 1 and 2 of Article 9 of the BITC, that accepts direct negotiations and recourse to national courts, (79) do not constitute a constitutional violation. The Court only declares inadmissible Article 9.3 of the BITC (“If a dispute related to the amount of compensation for expropriation can not be resolved within six months after resorting to negotiations as specified in paragraph 1 of this article, the dispute may be submitted at the request of either party to an ad hoc arbitration tribunal”). (80) Therefore, the court only declares the third section unconstitutional, considering that its application “implies the renunciation to the jurisdiction of the State, that is considered one of the most important manifestations of territorial sovereignty and refers to the administration of justice by state courts.” (81)

74 BITS, op. cit.

75 BITFr, op. cit.

76 “a obtener un proceso de integracion regional, sino que se trata de un instrumento internacional que compromete a los estados, particulares y sociedades de la Republica del Ecuador y del Gobierno del Reino de Suecia, basicamente en lo relacionado con las inversiones, razon por la cual no tiene asidero en la excepcion establecida en la antes referida norma constitucional.” BITS Judgment, op. cit., at p. 13.

With almost identical wording, the opinion around BITFr states that “the said Article 9 of the International Convention is not aimed at the creation of a regional integration process, but it is an instrument that commits states, national and companies of the Republic of Ecuador and the Government of the French Republic within a limited scope of investments. Therefore it can not be subsumed in the constitutional exception. For these reasons it is considered that Article 9 of the International Convention is considered contrary to the Constitution of the Republic of Ecuador. (“el referido articulo 9 del Convenio Internacional no esta orientado a la creacion de un proceso de integracion regional, sino que se trata de un instrumento que compromete a los Estados, nacionales y sociedades de la Republica del Ecuador y el Gobierno de la Republica Francesa dentro de un ambito delimitado que son las inversiones, por lo tanto no se circunscribe en la excepcion prevista en la normativa constitucional. Por estas razones, se considera que el articulo 9 del convenio Internacional examinado es contrario a la Constitucion de la Republica del Ecuador.”) BITFr Judgment, op. cit., at p. 42.

77 BITFr, op. cit.

78 The statement of the Constitutional Court regarding Article 10 of the BITF is doubtful: “Article 10 of the treaty relates to the inclusion of an independent body to mediate conflicts if the parties fail to resolve disputes amicably.” Article 10 is actually referring to arbitration. BITFr Judgment, op. cit., at p. 12.

79 BITC, op. cit., Art. 9.

80 BITC, op. cit., Art. 9.3 (author’s translation). It is noteworthy that, unlike other Ecuadorian BITs, Article 9.3 BITC limits the intervention of an ad hoc arbitral tribunal to a “dispute concerning the amount of compensation for expropriation.” Another interesting fact is that some of the ad hoc arbitral tribunals that might be created ex Article 9.3 to resolve such disputes could de facto meet the requirements of Article 422.2 of the current Ecuadorian Constitution. To make this possible, this approach requires an understanding of the constitutional reference in the sense that a “regional arbitration body” also includes ad hoc arbitral tribunals and that “disputes between states and citizens in Latin America” is not demanding that the investor be a national of a Latin American state, but only that the dispute arise in a geographical area in Latin America. See section A. 1 above.

81 BITC Judgment, op. cit., at p. 24 (author’s translation).

b) Consideration 2Katia Fach Gomez

 

Regarding the provisions governing disputes between contracting parties, these judgments present striking differences: First, the Court considers that Article 8 of the BITC and Article 11 of the BITFi do not contradict Article 422.1 of the Ecuadorian Constitution. These provisions reflect a guarantee that is common to the BITs: Any dispute between contracting states concerning the interpretation of the BIT will try to be resolved by consultation through diplomatic channels. If no agreement is reached within a specified period, the dispute shall be settled by an arbitral tribunal and if it is not appointed by the concerned states, the tribunal shall be appointed by the President of the International Court of Justice. In connection with the arbitration referred to in these articles, the Ecuadorian Constitutional Court considers that this kind of arbitration neither affects the sovereignty of the Republic of Ecuador nor implies a transfer of jurisdiction. For example, under Article 11 of the BITFi, the judgment states that “this provision is in complete adherence to the constitutional rule. (82) Concerning Article 8 of the BITC, the Constitutional Court states that:

Arbitration is an institution recognized by Public International Law for the settlement of disputes arising between two or more States. Hence, in the event of any dispute between Ecuador and China concerning the interpretation and/or application of the Treaty, the recourse to arbitration is completely valid. It doesn’t mean that national sovereignty will be affected or jurisdiction transferred, since under Article 419.9 of the Constitution, Ecuador recognizes international law as a standard of conduct.(83)

On the other hand, Article 9 of the BITGB, BITG, BITS, and Article 12 of BITN and BITFr, (84) despite also trying to resolve disputes between Contracting States concerning the interpretation of BIT through direct negotiations or ad hoc arbitration, are considered by the Court in its entirety as “a clause contrary to the Constitution and therefore harmful to the country's sovereign interest.” (85) In these reflections, the Court cites Article 422 of the Constitution and also refers to Article 416.12 of the Constitution. (86)

c) Consideration 3Katia Fach Gomez

 

Occasionally, the declarations of unconstitutionality issued by the Constitutional Court do not only refer to the settlement of disagreements between the contracting parties and between an investor and the host state, but also extends to other subjects. The Constitutional Court does not accept Article 7 of BITG and Article 11 of BITFr, (87) declaring the prevalence of provisions not included in the BITs that are more favorable for the investors. The Court argues that the prioritization of these non-BITs provisions would be contrary to the principle of the supremacy of the constitutional law enshrined in Article 424 of the Constitution...any provision of national law of the contracting parties as well as the regulations contained in international instruments should be consistent with the Constitution and therefore cannot be applied preempting this BIT without being first checked as to their conformity with the constitutional provisions. (88)

The judgment regarding the BITG also declares Article 8 unconstitutional, which gives protection to previous investments. The Court rules that protecting investments done before the entry into force of the BITG would violate Article 82 of the Constitution (“The right to legal security is based on respect for the Constitution and the existence of prior legal regulations that are clear, public and applied by the competent authorities.”) (89)

82 See also BITFi Judgment, op. cit., p. 12, (author’s translation).

83 “El arbitraje es una institucion reconocida por el Derecho Internacional Publico para la solucion de controversias surgidas entre dos o mas Estados. De ahi que, en el caso de surgir controversias entre Ecuador y China respecto de la interpretacion y/o aplicacion del Convenio es completamente valido recurrir al arbitraje, sin que ello implique afectar a la soberania nacional ni ceder jurisdiccion alguna, ya que de conformidad con el articulo 419.9 de la Constitucion de la Republica, el Ecuador reconoce el derecho internacional como norma de conducta.” (author’s translation) BITC Judgment, p. 22.

84 Article 12 of BITFr, unlike other texts that refer to the President of the International Court of Justice, states that if no agreement is reached the Secretary General of the United Nations will be asked to proceed with the necessary appointments. BITFr, op. cit.

85 “Una clausula contraria a la Constitucion y consecuentemente lesiva para el interes soberano del pais” (author’s translation) BITGB Judgment, p. 15; BITG Judgment, pp. 15-16.

86 BITS Judgment, p. 14; and BITN Judgment, p. 28.

87 BITFr, op. cit.

88 “Principio de supremacia de la normativa constitucional consagrada en el articulo 424 de la Constitucion de la Republica....cualquier disposicion normativa del derecho interno de las partes contratantes asi como la normativa contenida en los instrumentos internacionales deben guardar armonia con el texto constitucional, por lo que no pueden ser aplicadas de manera preferencial sobre este tratado sin antes ser objeto de control respecto a su compatibilidad con las normas constitucionales.” BITG Judgment, p. 14.

89 BITG Judgment, p. 14.

5. Critical Reflections on the JudgmentsKatia Fach Gomez

 

Criticism about the legal quality of the judgments issued by the Ecuadorian Constitutional Court is justified.

A technically questionable aspect of these judgments are the discrepancies that can be found by comparing the various judgments, even though all of them analyze BITs provisions that are very similar or nearly identical. Together with the cases already discussed in the previous section of this chapter, (90) the extent of these BITs’ denunciations provide another example of dissonance. In the judgments referring to the BITC and BITGB, the Court cites Article 44 of the Vienna Convention on the Law of Treaties to indicate that if Ecuador denounces these BITs, this denunciation shall be exercised not only against the provisions declared unconstitutional, but also on the whole BIT, “the consequence being that Ecuador will no longer be party to that international instrument.” (91) On the other hand, the Court’s opinion regarding the extent of the denunciation against the BITS, BITN, BITFr and BITG asserts that “since only certain articles of the international instrument are inconsistent with the Constitution, this Court finds it is unnecessary to denounce the whole international treaty, but only the provisions that are not in harmony with the Constitution.” (92) In this regard, the Court reminds the Ecuadorian legislative branch that, when negotiating a BIT, “it is of vital importance to establish the mechanisms for resolving disputes or conflicts, which must be subject to the mutual agreement of the contracting parties and respect the constitutional provisions” (93)

Additionally, it appears that the Constitutional Court’s judgments seek to reject the different arguments presented by Ecuadorian citizens against the office of President Correa. For example, as a response to Mr. Prieto Munoz’s submission, (94) the opinion on the BITGB reflects extensively on the exceptions to the principle pacta sunt servanda (95) and, more specifically, it concludes that new constitutional principles, such as priority given to domestic investment or the promotion of a new trade and investment system that relies on justice, leading to avoid foreign private disputes from escalating into conflicts between states, (96) represent a fundamental change of circumstances that can be subsumed, against Mr. Prieto Munoz’s opinion, in the principle rebus sic stantibus. (97) This kind of defensive argument of the Ecuadorian Court could lead to the fear that these judgments of the judicial branch are tailored to support the current executive branch’s anti-arbitration policies.

Thus, it is noteworthy that the Constitutional Court cites Wikipedia as a source to explain a legal concept such as the denunciation of international treaties. (98) On several occasions the Court also explains essential legal terms such as the notion of Bilateral Investment Treaty using a brief comment contained in www.quiendebeaquien.org, a website created by a group of Spanish citizens with the objective of promoting a “campaign for the abolition of external debt and the restoration of ecological debt.” (99) In my opinion, there is a very rich doctrine and abundant case law on these matters, which render including this kind of reference as clearly inappropriate.

90 See section A. 1 above.

91 “Siendo la consecuencia de ello que el Ecuador deje de ser parte en dicho instrumento internacional,” BITC Judgment, p. 25; BITGB Judgment, p. 15 (author’s translation).

92 “Dado que solo ciertos articulos del instrumento internacional estan en contradiccion con el texto constitucional, esta Corte considera que no es menester denunciar todo el tratado internacional, sino exclusivamente los articulos que no guardan armonia con el texto constitucional.” BITG Judgment, p. 19 (author’s translation).

93 “Es de trascendencia vital establecer los mecanismos de solucion de las diferencias o conflictos, los cuales deberan sujetarse al comun acuerdo de las partes contratantes y respetando los preceptos constitucionales.” BITS Judgment, p. 15, (author’s translation). In reality, the first option, denunciation of the whole BIT, has prevailed because in the months of September and October 2010, the Ecuadorian National Assembly issued several statements approving the full denunciation of the BITs previously declared unconstitutional by the Constitutional Court of Ecuador. Available at: http://www.asambleanacional.gov.ec/201009144213/noticias/boletines/por-contradecirexpresas- normas-constitucionales-pleno-acepta-denuncia-del-convenio-de-proteccion-reciproca-de-inversionesentre- reino-unido-y-ecuador.html (last visited April 8, 2011).

94 BITGB Judgment, p. 9.

95 BITG Judgment, p. 11.

96 Articles 416, 276 and 339 of the 2008 Constitution; BITGB Judgment, p. 15; BITG Judgment, p. 12.

97 The Court states that: “Treaties are signed under certain circumstances existing at that time and these are, sometimes, the basis for the conclusion of the agreement. If these circumstances vary greatly and could not be foreseen, the treaty would have lost its rationale and it maintenance would not make sense. This change makes impossible to fulfill the treaty or the conditions can no longer be the same as originally stipulated." “Los tratados se suscriben bajo determinadas circunstancias existentes en ese momento y estas son, en ocasiones, la base para la celebracion del acuerdo, y si estas varian sustancialmente y no pudieran ser previstas, habria desaparecido la razon de ser del convenio y no tendria sentido mantenerlo, dicho cambio vuelve imposible su cumplimiento, o las condiciones ya no pueden ser las mismas que originariamente se estipularon.” BITGB Judgment, p. 12 (author’s translation).

98 BITC Judgment p.19; BITGB Judgment, p. 14.

99 Available at: http://www.quiendebeaquien.org/spip.php?article1688 (last visited April 8, 2011).

These judgments also contain some misprints that undermine their credibility. For example, the opinion on the BITGB refers to Articles 75.3.d and 107 of the Ecuadorian Constitution as the basis for the control of constitutionality that the Court exercises over the international treaties, (100) but in fact these provisions belong to the LOGJCC. Similarly, the opinion on the BITN refers to Article 10 (101), but it should in fact refer to Article 11, and the Opinion on the BITN uses the acronym CKUDMI (102) instead of the proper CNUDMI (UNCITRAL).

It is envisioned that by the end of the year 2010, the Ecuadorian Constitutional Court will have issued all its judgments on the BITs that President Correa wants to declare unconstitutional. In theory, future judgments may reach different conclusions from those analyzed here. This Chapter has already revealed the fact that the Court has decided differently on specific issues on the basis of similar texts. This leads one to consider whether an explanation can be given solely based on the fact that the judgments were drafted by different judges or if it instead implies a degree of contradiction, as the court decided without having dissenting opinions among the members of the Constitutional Court. (103) Despite that revealed above, it seems very likely that future judgments of the Ecuadorian Constitutional Court regarding other BITs will reach the same final conclusion, unconstitutionality, as the judgments on the BITs discussed in this chapter. This assumption can be made taking into account both legal criteria such as the value of constitutional precedent in Ecuador, (104) and reading the clear criticisms that the Ecuadorian Constitutional Court has incorporated into the issued judgments. (105) This critical position of the status quo in the international investment arena has also been adopted by the Permanent Special Commission of Sovereignty, Integration, International Relations and Traffic Safety (Comision Especializada Permanente de soberania, integracion, relaciones internacionales y seguridad vial de la Asamblea Nacional) of the Ecuadorian National Assembly, a commission that supports the judgments of the Constitutional Court (106) before the Assembly formally denounces the BITs. (107)

100 BITGB Judgment, op. cit., at p. 9.

101 BITN Judgment, op. cit., at p. 27.

102 BITN Judgment, op. cit., at p. 19.

103 As the court wants to avoid the shadow of contradiction, it expressly stated that the contents of BITs are not identical and that therefore, the Court's pronouncement is made only about a specific BIT and is not a ruling on all other BITs listed by President Correa in his Official Letter. BITG Judgment, p. 18.

104 Art 2: “Principles of constitutional justice: In addition to the principles enshrined in the Constitution, the following principles for resolving the cases that are brought to its knowledge shall be taken into account: Mandatory constitutional precedent .- The interpretation of the Constitutional parameters set by the Constitutional court in the cases submitted to its jurisdiction are binding. The Court can abandon its precedents in an explicit and argued way, guaranteeing the progression of rights and the validity of the constitutional state of rights and justice.” “Principios de la justicia constitucional: Ademas de los principios establecidos en la Constitucion, se tendran en cuenta los siguientes principios generales para resolver las causas que se sometan a su conocimiento: Obligatoriedad del precedente constitucional.- Los parametros interpretativos de la Constitucion fijados por la Corte Constitucional en los casos sometidos a su conocimiento tienen fuerza vinculante. La Corte podra alejarse de sus precedentes de forma explicita y argumentada garantizando la progresividad de los derechos y la vigencia del estado constitucional de derechos y justicia.” Ley Organica de Garantias Jurisdiccionales y Control Constitucional. Registro Oficial No. 52, October 22, 2009, Second Supplement, available at: http://www.derechoecuador.com/index.php? option=com_content&task=view&id=5198&Itemid=554 (last visited April 8, 2011).

105 Reading these opinions, it is clear that the Ecuadorian Constitutional Court made a series of allegations against the classical system of international investment. For example, the Court states that BITs “in practice have meant that the benefits go largely to investor countries or countries of origin of the capital,” “benefits that could be compared with those double taxation treaties, thanks to which I invest and earn in another country, but tribute in my own country,” “we must ask to what extent these BITs have been reciprocal and which profits have made our investors in the UK. Virtually Ecuador has joined all the BITs,” “international arbitration courts are private and do not respond to a collective interest.” BITGB Judgment, p. 14 (author’s translations).

106 The content of these reports is very similar. See for example, the Report of October 14, 2010 regarding the BITC, http://documentacion.asambleanacional.gov.ec/alfresco/d/d/workspace/SpacesStore/172f25ea-c7f7-4acea178- 9be76acfc374/Informe%20sobre%20la%20solicitud%20del%20Presidente%20de%20la%20Rep %C3%BAblica%20de%20aprobar%20la%20Denuncia%20del%20Conv; and available at: http:// www.derechoecuador.com/index.php?option=com_content&task=view&id=5881&Itemid=557.

107 National Assembly of Ecuador, “Por contradecir expresas normas constitucionales, Pleno acepta denuncia del Convenio de proteccion reciproca de inversiones entre Reino Unido y Ecuador,” Press Release, September 14, 2010, available at: http://www.asambleanacional.gov.ec/201009144213/noticias/boletines/por-contradecir-expresasnormas- constitucionales-pleno-acepta-denuncia-del-convenio-de-proteccion-reciproca-de-inversiones-entre-reinounido- y-ecuador.html (last visited April 8, 2011).

C. THE REAL IMPACT OF ARTICLE 422 OF THE CONSTITUTION ON THE CURRENT ECUADORIAN LEGAL AND ECONOMIC ORDERKatia Fach Gomez

 

Section B of this chapter presented the contents of the judgments so far issued by the Constitutional Court. It also legally assessed such declarations of unconstitutionality of the Ecuadorian BITs. Section C is going to analyze to what extent Article 422 of the Ecuadorian Constitution has influenced the political activity of Correa's government in the last two years. As it will be revealed, there have been some recent events taking place to show that the government is implementing various “escape routes” to circumvent the prohibition that the Constitution imposes on the Ecuadorian State to yield its sovereign jurisdiction to international arbitration entities. (108)

1. Intrinsic LimitsKatia Fach Gomez

 

The BIT provisions themselves make their denunciation, based on the violation of Article 422, so as not to produce effects as quickly as one might think. (109)

First, each BIT contains a provision stating that it will remain in effect for a period of one year after the other contracting party receives the formal notification of denunciation. (110) Second, the Ecuadorian BITs contain a survival clause. This clause allows investments made before the BIT termination date to remain protected by the BIT during an ample period of time, such as 10 years in the BITC or fifteen years in the case of the BITGB. (111) Hence, the effects of these denunciations will only be felt in the next decade at the earliest. An example is the arbitration claim filed in December 2009 by Chevron against the Republic of Ecuador. (112) The BIT between Ecuador and USA will still apply to the case, even if the Ecuadorian Constitutional Court would proclaim the treaty unconstitutional as expected to do so.

Besides that, it is predicted that this massive BIT denunciation could have an undesirable effect on Ecuador. Investors from countries whose BITs have been denounced could choose to go to investment arbitration proceedings and bring all of their claims before the deadlines set forth in the survival clauses of the BITs are exhausted. (113)

All of this data has come together to generate a situation of uncertainty, (114) which has been criticized by foreign investors (115) and those investors’ countries of origin. (116) Some Ecuadorian sectors also point out that this uncertainty is to blame for the low rate of direct foreign investment in the country, much lower than that received by other Latin American countries. (117)

108 Karsten Nowrot, “Ecuador’s Destroy and Rebuilt Strategy,” International Investment Law and the Republic of Ecuador, May 2010, available at: www.wirtschaftsrecht.uni-halle.de/Heft_96.pdf (last visited April 8, 2011).

109 Fernando Cabrera Diaz, “Ecuador Prepares for Life After ICSID, While Debate Continues over Effect of Its Exit from the Center,” Investment Treaty News, Sept. 2 2009, available at: http://www.investmenttreatynews.org/cms/ news/archive/2009/08/28/ecuador-prepares-for-life-after-ICSID-while-debate-continues-over-effect-of-its-exit-fromthe- centre.aspx (last visited April 8, 2011).

110 Taking as an example the BITGB, Article 14 states: “This Agreement shall continue in force until the expiration of twelve months from the date on which either contracting Party shall have given written notice of termination to the other.” Similarly, see Article 11.2 BITS, Article 13.3 BITC, Article 14 BITF, Article 14.2 BITN, Article 13.2 BITF, Article 12.2 BITG.

111 Article 14 BITGB: “Its provisions shall continue in effect with respect to such investments for a period of fifteen years after the date termination and without prejudice to the application thereafter of the rules of general international law.” (Including this 15-year survival clause, see also Article 11.3 BITS, 14.3 BITN, 13.3 BITF, 12.3 BITG. Including a 10-year survival clause, see Article 13.4 BITC and Article 14 BITF.)

112 “Chevron Files International Arbitration Against the Government of Ecuador Over Violations of the United States-Ecuador Bilateral Investment Treat,” available at http://www.chevron.com/news/Press/release/? id=2009-09-23 (last viewed April 8, 2011); Andrea K. Bjorklund, “Ecuador Moves to stay Arbitration Brought by Chevron,” Kluwer Arbitration Blog, February 18, 2010, available at: http://kluwerarbitrationblog.com/blog/ 2010/02/18/ecuador_stay/ (last visited April 8, 2011).

113 Cesar Coronel Jones states: “It is quite possible that Ecuador’s recent initiative to end international arbitration will ultimately produce the opposite effect because the governments nationalistic discourse against investment treaties may be encouraging forcing investors to file their claims while bit protection is still available,” “The future of international arbitration in Ecuador: the boomerang effect,” available at: http://www.internationallawoffice.com/ newsletters/results.aspx?c=Ecuador (last visited April 8, 2011).

114 “Incertidumbre sobre el futuro de tratados bilaterales de inversiones en el Ecuador,” available at: http://ictsd.org/ i/news/puentesquincenal/85245/ (last visited April 8, 2011).

115 Some foreign companies operating in Ecuador have published on their website Linda Cross’ s statements, available at: http://www.bittium-energy.com/cms/content/view/47465/272/ (last visited April 8, 2011).

116 Linda Cross, Britain's ambassador in Ecuador expressed her disagreement with the termination of the BIT between the two countries. The diplomat said that due to the economic crisis that was taking place in the United Kingdom, the government wanted to boost the private sector, and in that sense, the foreign ministry wanted to promote economic opportunities outside the country. However, this is going to be hampered by the absence of a BIT. “Ya no hay proteccion para nuevas inversiones,” available at: http://www.hoy.com.ec/noticias-ecuador/ya-no-hayproteccion- para-nuevas-inversiones-423489.html (last visited April 8, 2011).

117 In Ecuador, foreign direct investment reached nearly $200 million last year. In Colombia, $10,500 million were invested and $7 billion in Peru. The Director of the British Ecuadorian Chamber of Commerce and Industry states: “It makes no sense that we are isolated in this way, why are we isolated? Because we do not offer legal certainty. What are the tools to provide security for investment? Treaties are just some, but if we remove the treaties we are in a worse position than we had in the previous year, and this year, when it seems like foreign investment will be worse. “ (“No tiene sentido que estemos aislados de esa forma, ¿por que estamos aislados? porque no ofrecemos seguridad juridica, ¿cuales son los instrumentos para ofrecer seguridad para la inversion?, justamente los tratados son unos, pero eliminando los tratados estamos en peor posicion que la que tuvimos en el ano anterior; y en este ano, cuando pareceria que la inversion extranjera va a ser peor,”) Buro de Analisis Informativo, Corte revisa constitucionalidad de nueve tratados bilaterales mas, September 24, 2010, available at: http:// www.burodeanalisis.com/2010/09/24/corte-revisa-constitucionalidad-de-nueve-tratados-bilaterales-mas/ (last visited April 8, 2011).

2. Extrinsic – and sometimes Theoretical – Limits.Katia Fach Gomez

 

The Ecuadorian government sometimes continues to formally defend the settlement of disputes through arbitration mechanisms that do not exceed the regionalist scope. For example, a seminar held in October 2010 and sponsored by the Attorney General of the State stressed the importance of arbitration as a mechanism to build a democratic Ecuador. The judicial overload also justifies the need to continue to prepare Ecuadorian professionals who can properly address arbitration functions. (118) Similarly, recent Ecuadorian Acts don’t admit the recourse to ultra-regional arbitration. For instance, the 2009 Mining Act establishes in article 14 that: “Individuals or corporations, domestic or foreign, who are holders of mining rights or conduct mining activities are subject to the laws, courts and judges of the country. In the case of foreign natural and legal persons, they shall comply with the terms of Article 422 of the Constitution of the Republic of Ecuador.” (119) Similarly, Article 41 of this Act states that: “while developing the activities of the operational phase, the licensee must comply with the current environmental regulations and can not carry out their activities without the corresponding environmental permit. The resolution of differences and/or disputes on this issue will only be submitted to Ecuadorian judges or to an arbitral institution in Latin America.” (120)/p>

However, reality shows that the government sometimes accepts the jurisdiction of international arbitration tribunals. This is due to its willingness to minimize the negative effects 37 that a rigid interpretation of Article 422 (121) can generate on international investment and, indirectly, on the Ecuadorian sumak kawsay.

118 Buro de Analisis Informativo, Procuraduria promociona arbitraje como medio para aminorar procesos internacionales, October 22, 2010, available at: http://www.burodeanalisis.com/2010/10/22/procuraduriapromociona- arbitraje-como-medio-para-aminorar-procesos-internacionales/ (last visited April 8, 2011).

119 Article 14: “Jurisdiccion y competencia. Las personas naturales o juridicas, nacionales o extranjeras, que sean titulares de derechos mineros o realicen actividades mineras, estan sometidas a las leyes, tribunales y jueces del pais. En el caso de las personas naturales y juridicas extranjeras, se atendran a los terminos del articulo 422 de la Constitucion de la Republica del Ecuador.” Ley de Mineria. Registro Oficial, Ano III. Quito, January 29, 2009 No. 517, available at: http://www.cme.org.ec/normas-mineras/ley-de-mineria.html (last visited April 8, 2011). Nevertheless, the Ecuadorian government will force companies operating in the mining sector to negotiate in the following months a new mining contract drawn up by the Ministry of Nonrenewable Natural Resources. It is still unknown whether this contract will maintain its fidelity to the Latin American dispute settlement context. Ministerio de Recursos Naturales No Renovables, Ministerio de Recursos Naturales No Renovables tiene listo el modelo de “Contrato de explotacion minera” a v a i l a b l e a t : http://www.mrnnr.gob.ec/index.php? option=com_content&view=article&id=996%3Aministerio-de-recursos-naturales-no-renovables-tiene-listo-elmodelo- de-contrato-de-explotacion-minera&catid=3%3Anewsflash&Itemid=133&lang=sh (last visited April 8, 2011).

120 Article 41: “Contrato de Explotacion minera En el desarrollo de las actividades propias de la etapa de explotacion, el concesionario minero debera cumplir con la normativa ambiental vigente y no podra llevar a cabo dichas actividades sin la correspondiente Licencia Ambiental. La resolucion de diferencias y/o controversias que sea materia de estos contratos solo podra someterse a los jueces de la Funcion Judicial del Ecuador o de una instancia de arbitraje en Latinoamerica.” Ley de Mineria. Registro Oficial, Ano III. Quito, January 29, 2009 No. 517, available at: http://www.cme.org.ec/normas-mineras/ley-de-mineria.html (last visited April 8, 2011).

121 An interesting reflection on the proper scope of Article 422 has been generated in the following case: An Ecuadorian worker filed a wrongful termination lawsuit against the Executive Secretary and the Administrative Chief of the Latin American Energy Organization (OLADE), headquartered in Quito. Aiming to question the competence of the Ecuadorian National Court of Justice, the defendants alleged several national and international provisions, including Article 422 of the Ecuadorian Constitution. The Court rejected those arguments, stating specifically that: “Article 422 of the Constitution of the Republic contains the requirements to be met by international treaties and instruments that are held after the Constitution entered into force, and therefore does not provide immunity from jurisdiction rules for diplomats and international civil servants.” (“El articulo 422 de la Constitucion de la Republica, que cita el Procurador, contiene los requisitos que deben cumplir los tratados e instrumentos internacionales, que se celebren con posterioridad a su vigencia, por tanto no establece reglas de inmunidad de jurisdiccion para los agentes diplomaticos y funcionarios internacionales”). La Corte Nacional de Justicia, Sentencia Dictada el l 25 de marzo de 2010 dentro del Juicio Laboral No. 04-2009 seguido por Aida Beatriz Benalcazar Subia contra la Organizacion Latinoamericana de Energia, Olade y otros. Available at: http:// www.cortesuprema.gov.ec/cn/wwwcn/pdf/sentencias/presidencia/2010/marzo_2010.pdf (last visited April 8, 2011).

a. International ObligationsKatia Fach Gomez

 

One of the first signs of this trend in the international arena was the Memorandum of Agreement for Management and other Support Services related to the Ecuador Yasuni Ishpingo Tambococha Tiputini (ITT) Trust Fund. On August 3, 2010, the Government of Ecuador and the United Nations Development Program (UNDP) signed this Memorandum of Agreement creating an international fund to support the Ecuadorian decision not to extract oil from an environmentally rich area of Ecuador. Article 11 of this Memorandum of Agreement deals with dispute settlement and, although Quito is established as the first venue for future arbitrations, the State of Ecuador recognizes that it may consent to an arbitration held in foreign venues such as New York.

In the event that the controversy, claim or dispute is not resolved amicably by direct negotiations between the Parties three months after one party has notified the other party of such dispute, controversy or claim, either party may initiate arbitration. Each Party shall appoint one arbitrator, and the two arbitrators so appointed should appoint a third, who shall be the chairman. If within thirty days of the request for arbitration, either Party has not appointed an arbitrator or if within fifteen days of the appointment of two arbitrators, the third arbitrator has not been appointed, either Party may request the President of the International Court of Justice to appoint an arbitrator. The procedure of the arbitration shall be fixed by the arbitrators and the expenses of the arbitration shall be borne by the Parties as assessed by the arbitrators. The arbitral proceedings will take place in Quito, Ecuador, unless the Parties and/or the arbitrators agree that another place, such as New York, USA, is more appropriate, depending on the nature of the dispute, controversy or claim. The language of the proceedings shall be Spanish. Simultaneous interpretation of the proceedings and the translation of all documents and the proceedings shall also be available in English, as necessary. The arbitral award shall contain a statement of the reasons on which it is based and shall be accepted by the Parties as the final adjudication of the dispute. (122)

b. Contracts with Foreign EntitiesKatia Fach Gomez

 

Citing another example, the Constitutional Court authorized in 2009 the Ecuadorian Ministry of Finance to sign a loan contract with the Inter-American Development Bank (IDB). This contract included an arbitration clause stating that the tribunal would resolve any disputes in ex aequo et bono arbitration. (123) The State Attorney General had previously considered that this contractual clause violated Article 190.2 of the Constitution, which declares that “in public bidding processes, legal arbitration shall be accepted after a favorable ruling by the Attorney-General’s Office, in conformity with provisions provided by the law.” (124) However, the Constitutional Court considered that Article 190.2 only refers to public contracting, defined as the contractual relationship between the State, public entities and the private sector. In the case of this international loan, where Ecuador was subject to laws and international obligations, the applicable rules are contained in the final paragraph of Article 422. (125) As this constitutional provision states that: “in the case of disputes involving foreign debt, the Ecuadorian State shall promote arbitration solutions on the basis of the origin of the debt and subject to the principles of transparency, equity and international justice,” (126) the Constitutional Court admitted the inclusion of a clause allowing ex aequo et bono arbitration in international loan contracts where the State of Ecuador is a party. One might think that this decision was influenced by the fact that the IBD is an international organization of which Ecuador is a member and that it seeks to eliminate poverty and inequality, and promotes sustainable economic growth in Latin America and the Caribbean. (127) This objective, favorable to Ecuador, may also be on the basis of the acceptance of arbitration with the UNDP, alluded to in the previous section.

This agreement generated a lot of controversy in Ecuador. For some, these contracts constitute a violation of Article 422, while the government defends its position on the basis of Article 307 of the Ecuadorian Constitution. Currently, Article 307 states that: “Contracts entered into by the State with foreign natural persons and legal entities shall implicitly entail the waiver by these persons of any diplomatic immunity, except in the case of contracts with the foreign service.” (128) Allegedly, when it was drafted, the following sentence was eliminated from Article 307: “The Ecuadorian State shall not be subjected to foreign jurisdiction except to arbitration procedures of Latin American integration cited in this Constitution.” This change was introduced by the Proud and Sovereign Fatherland Movement (Movimiento Patria Altiva y Soberana) (PAIS), the party founded by Correa, which has a political majority in the Ecuadorian Assembly. This change allows the government to circumvent the spirit of Article 422. (129)

On the other hand, the Ecuadorian government relies on the same Article 422 to defend the constitutionality of their ultra-regional arbitral choices. Specifically, the Ecuadorian Finance Minister Patricio Rivera declared that they chose the London venue because its decisions are more flexible and neutral. (130) In the same vein, the Ecuadorian Minister of Production, Nathalie Cely, said that arbitration in Beijing or London is not incompatible with Article 422 of the Constitution, because “when a private or national institution funds the Ecuadorian Government, the arbitral venue can be anywhere.” (131) Therefore, the Ecuadorian government is considering that a loan agreement such as the one signed with China cannot be subsumed within the concept “international agreement” referred to in Article 422. In addition, the attorney Diego Garcia has stated that what the Ecuadorian Constitution does not allow are general arbitration clauses or what is known as umbrella clauses (132) in the treaties:

No agreement, but rather a contract, has been signed with China and that is precisely the difference. The Constitution does not allow the signature of treaties or international instruments recognizing international arbitration in a foreign jurisdiction, but it does not prohibit such jurisdiction in the case of contracts . . . if a BIT were signed with another State, obviously we could not get out of the constitutional scope. (133)

122 Memorandum of Agreement between the Government of Ecuador and the United Nations Development Programme for Management and Other Support Services Related to the Ecuador Yasuni ITT Fund, Pg. 16, available at: http://mdtf.undp.org/document/download/4494 (last visited April 8, 2011).

123 Capitulo VIII de Normas Generales, articulo 8.04: “The Court will decide ex aequo et bono, based on the terms of this contract and deliver his award even if either party is acting in contempt.” “El Tribunal fallara en conciencia, con base en los terminos de este contrato y pronunciara su fallo aun en el caso de que alguna de las partes actue en rebeldia.” Sentencia Interpretativa N. 0001-09-SIC-CC, March 13, 2009, available at: http:// www.derechoecuador.com/index.php?option=com_content&task=view&id=4886&Itemid=520 (last visited April 8, 2011) (author’s translation).

124 Ecuador CONST, op. cit.

125 “In regard to Ecuador as a subject of law and international obligations, including those arising from the contracting of external debt, which is the case, the rules are those contained in the final paragraph of Article 422.” “En lo que se refiere al Estado ecuatoriano como sujeto de derecho y obligaciones internacionales, como las originadas por la contratacion de deuda externa, que es el caso, las reglas aplicables son las contenidas en el articulo 422 inciso final,” La Corte Constitucional, para el periodo de transicion, Sentencia Interpretativa, No. 0001-09-SICCC, Caso N.º 0001-09-IC, March 13, 2010, Registro Oficial No. 549, available at: http://www.derechoecuador.com/ index.php?option=com_content&task=view&id=4886&Itemid=520 (last visited April 8, 2011).

126 Ecuador CONST, op. cit.

127 See http://www.iadb.org/ (last visited April 8, 2011).

128 Ecuador CONST, op. cit.

129 Providing a very critical point of view of the Ecuadorian President’s work, see Leon Roldos, Raja, perro, El Universo, October 25, 2010, available at: http://www.eluniverso.com/2010/10/25/1/1363/raja-perro.html (last visited April 8, 2011).

130 “When asked what could be the scenario if Ecuador could not provide that oil to China, Rivera said that China, in both cases has the option to go to court in London, that is the arbitrator that has been chosen by the parties to settle differences. According to Rivera, the fundamental reason why this venue has been chosen is because, analyzing the awards of this Court, it has been realized that they are more flexible and neutral. Speaking about this topic, Fernando Villavicencio, oil analyst, questioned whether a socialist-style government, contrary to the Treaty on Investment Protection, will finally accept the arbitration of the Imperial Court in London, the same court than in 2007 ruled in favor of Western transnational and forced Ecuador to unfairly return over $ 100 million for the oil VAT.” “Al ser consultado sobre cual seria el escenario, en el caso de que Ecuador no pudiera proveer de ese petroleo al pais asiatico, Rivera indico que China, en ambos casos tiene posibilidad de acudir a la Corte de Londres, que es el arbitro que ha sido elegido por las partes para dirimir diferencias. Segun Rivera, la razon fundamental por la cual se escogio esta jurisdiccion es porque cuando se observan los fallos de esa Corte, se advierte que son mas flexibles y neutrales. Sobre el tema, Fernando Villavicencio, analista petrolero, cuestiono que un gobierno de corte socialista, contrario al Tratado de Proteccion de Inversiones, acabe aceptando el arbitraje de la Corte Imperial de Londres, la misma que el ano 2007 fallo a favor de la transnacional Occidental, obligando al Estado ecuatoriano a devolver injustamente mas de $ 100 millones por el IVA petrolero.” El Universo, Prestamo chino se hara con garantia petrolera, September 4, 2010, available at: http://www.eluniverso.com/2010/09/04/1/1356/prestamo-chino-hara-garantia-petrolera.html? p=1356&m=1226 (last visited April 8, 2011).

131 “Cuando una institucion privada o una nacional financia al Gobierno ecuatoriano, la sede arbitral puede ser en cualquier lugar.” Teleradio 1350AM, “Gobierno ecuatoriano defiende clausula de arbitraje de credito con China,” No date given, available at: http://www.teleradio.am/economia_info.php?id=163 (last visited April 8, 2011).

132 Buro de Analisis Informativo, “Denuncia de tratados bilaterales: ¿Acierto o equivocacion?,” October 26, 2010, available at: http://www.burodeanalisis.com/2010/10/26/denuncia-de-tratados-bilaterales-acierto-o-equivocacion/ (last visited April 8, 2011).

133 “Cuando se le consulto por que en ese documento si se incluyo una clausula que permite el arbitraje internacional, preciso que lo que no permite la Constitucion son clausulas arbitrales generales o lo que se conoce como protecciones paraguas en los tratados. No se han firmado tratados (con China), lo que se ha firmado es un contrato, y ahi esta precisamente la diferencia. La Constitucion no permite la suscripcion de tratados o acuerdos, instrumentos internacionales que reconozcan arbitrajes internacionales en jurisdiccion extranjera, pero no prohibe este tipo de jurisdiccion en lo que tiene que ver con contratos y lo que se ha autorizado a suscribir son contratos, senalo. El funcionario agrego ademas que, si se presentara un caso de un tratado bilateral de proteccion de inversiones que se celebre con cualquier otro pais, obviamente no podriamos salirnos del margen constitucional.” Buro de Analisis Informativo, “Denuncia de tratados bilaterales: ¿Acierto o equivocacion?,” October 26, 2010, available at: http://www.burodeanalisis.com/2010/10/26/denuncia-de-tratados-bilaterales-acierto-o-equivocacion/ (last visited April 8, 2011).

c. Sectoral LegislationKatia Fach Gomez

 

Important legislative activity has been taking place in recent months in Ecuador, with new laws passed or in preparation which include references admitting the intervention of international tribunals. By way of example, the 2010 Code of Planning and Public Finance, after proclaiming the foreigner’s renunciation to diplomatic protection, sets forth in its fifth general provision that, relying on prior authorization by the General State Attorney, other jurisdiction and legislation may be accepted for the settlement of differences or disputes regarding contracts entered into by the Ecuadorian State, entities and the public sector with foreign governments, public or private foreign entities. (134)

On October 29, 2010, the Ecuadorian President sent to the National Assembly a draft of the Code of Production, Trade and Investment. (135) The preamble to this Code describes in detail the current position of Ecuador on international trade and investment. Among other ideas, it stresses the importance of the people’s self-determination; the desire of having a multipolar global order; and of reaching an enhanced integration of the Latin American bloc. The Code also devotes a chapter to foreign investment (Articles 23-30). After making a brief reference to the basic rights of investors, such as fair and equitable treatment, which are normally included in the BITs, the Code regulates investment contracts. Article 27 lays out certain restrictions on the possibility of concluding this kind of contract, as they require a registered deed and should not have a duration exceeding 15 years. (136) Significantly, Article 27.4 imposes on the investor an obligation to choose, such as:

the benefit to the signing of an investment contract excludes any other benefit provided in other investment protection instruments. While some Bilateral Investment Treaty remains in force, investors must decide whether to invoke the protection and treatment under this law or under the international treaty. (137)

In relation to the dispute resolution mechanisms, Article 28 of the draft states:

Foreign investors and the Ecuadorian government shall try to resolve disputes amicably. If no settlement is reached directly between the parties, there shall be a compulsory conciliation period of six months from the date of commencement of the dispute. If after this instance of conciliation, the dispute continues, the conflict may be submitted to the attention of an arbitral tribunal whose composition, appointment mechanism, procedure and costs will be agreed with the investor through an investment contract, as required by the Constitution of the Republic; otherwise shall be referred to the ordinary courts. The decisions of the arbitral tribunal shall be based on the law, the applicable law shall be Ecuadorian law and the awards shall be final and binding on the parties. (138)

It is assumed that the Ecuadorian government is drafting the investment provisions of this code in order to replace the BITs that have been denounced, so that the State can continue protecting foreign investors. The aforementioned transitional provision included in the code suggests that, at least in theory, the Ecuadorian government although sovereign in its thoughtful decisions, does not want their revolution, (139) to be traumatic for the investor.

Having analyzed the aforementioned data, it is clear that the Ecuadorian government does not want to broadly interpret the constitutional prohibition contained in Article 422. The fact that Ecuador is accepting in some cases the intervention of a foreign jurisdiction is a hopeful sign. This case-by-case acceptance may be a reflection of the political and economic maturity of a country that acknowledges foreign investment as necessary for its evolution. Its policy of “cherry picking” could mean that it is able to choose what best suits the country. In this regard, a practitioner specialized in investment treaty arbitration has recently proposed to amend the Ecuadorian Constitution deleting a provision such as Article 422, which has been so harmful to the Ecuadorian Sumak Kawsay. (140) The flip side of the coin would consider the last movements of Correa’s government to be extremely dangerous. The vagueness of some recent legal provisions that resort to international courts must necessarily be offset by detailed and individualized negotiations with foreign companies willing to invest in Ecuador. And it is exactly at that stage where it is feared that the government would act with opacity and arbitrariness, giving priority to ideological likes and dislikes rather than the pursuit of the common good. (141)

134 Article 128: “Waiver of diplomatic claims. Any contract or agreement on public debt held by foreigners domiciled or not domiciled in the country, being natural or legal persons, with the Republic of Ecuador or to other public sector entities, implies the condition of waiving all claims through diplomatic channels even if they are signed outside the territory of Ecuador.” “Renuncia a reclamacion diplomatica.- Todo contrato o convenio de deuda publica, celebrado por extranjeros domiciliados o no en el pais, sean personas naturales o juridicas, con la Republica del Ecuador o con las demas entidades del sector publico, lleva implicito la condicion de renuncia a toda reclamacion por via diplomatica, aunque se suscriban fuera del territorio ecuatoriano.” Disposicion General 5.5: “Previous Authorization: Having the prior authorization of the State Attorney General, it may be accepted other jurisdiction and legislation for the settlement of differences or disputes relating to contracts entered into by the State and the entities and public sector bodies with governments, public or private foreign” “Autorizacion previa: previa autorizacion por el procurador general del Estado, podra aceptarse otra jurisdiccion y legislacion para la solucion de divergencias o controversias relativas a contratos, celebrados por el Estado y las entidades y organismos del sector publico con gobiernos, entidades publicas o privadas extranjeras.” Registro oficial No. 306, Second Supplement, October 22, 2010. available at: http://www.asambleanacional.gov.ec/201010184493/noticias/boletines/proyecto-decodigo- de-planificacion-y-finanzas-publicas-en-estudio-en-el-ejecutivo.html (last visited April 8, 2011).

135 Proyecto de Codigo Organico de la Produccion, Comercio e Inversiones, available at: http:// www.derechoecuador.com/index.php?option=com_content&task=view&id=5640&Itemid=415 (last visited April 8, 2011).

136 Karsten Nowrot, “Ecuador’s Destroy and Rebuilt Strategy,” International Investment Law and the Republic of Ecuador, May 2010, available at: www.wirtschaftsrecht.uni-halle.de/Heft_96.pdf (last visited April 8, 2011).

137 “El acogerse a la suscripcion de un contrato de inversion excluye cualquier beneficio previsto en otros instrumentos de proteccion de inversiones. Mientras subsista la vigencia de algun Tratado Bilateral de Inversion, los inversionistas deberan decidir entre acogerse a la proteccion y tratamiento previstos en esta ley o a los del convenio internacional.” Proyecto de Codigo Organico de la Produccion, Comercio e Inversiones, available at: http:// www.derechoecuador.com/index.php?option=com_content&task=view&id=5640&Itemid=415 (last visited April 8, 2011).

138 “Las controversias entre un inversionista extranjero con el Estado ecuatoriano intentaran solucionarse de manera amistosa. Si no se llegase a una solucion directa entre las partes debera existir una instancia obligatoria de conciliacion dentro de los seis meses siguientes a la fecha del inicio de la controversia. Si luego de esta instancia de conciliacion la controversia subsiste, el conflicto podra ser sometido a conocimiento de un tribunal arbitral cuya composicion, mecanismo de designacion, procedimiento y regimen de gastos seran acordados con el inversionista a traves de un contrato de inversion, acorde a lo que dispone la Constitucion de la Republica; caso contrario se someteran al conocimiento de la justicia ordinaria. Las decisiones de este Tribunal Arbitral seran en derecho, la legislacion aplicable sera la ecuatoriana y los laudos seran definitivos y obligatorios para las partes.” Proyecto de Codigo Organico de la Produccion, Comercio e Inversiones, available at: http://www.derechoecuador.com/ index.php?option=com_content&task=view&id=5640&Itemid=415 (last visited April 8, 2011).

139 Ecuador's past fits into the situation revealed by Gus Van Harten: “In the history of investment treaties, developing and transition states were presented with take-it-or-leave-it offers from major capital-exporters to conclude investment treaties that, it was said, would attract foreign investment in exchange for commitments by capital-importing countries not to expropriate or discriminate against foreign investors. There is now much evidence that the promised benefit did not materialise, whereas the obligations of host states have emerged as wide-ranging constraints on general regulations adopted in good faith and on a non-discriminatory basis.” Gus Van Harten, “Five Justifications for Investment Treaties: A Critical Discussion,” 2 Trade, Law & Development, 1 (2010), p. 32.

140 “As difficult as it may appear, the best way out of this entanglement is a constitutional amendment. Time has proved that it was a major mistake to insert a provision such as Article 422 into the Constitution, notwithstanding the hostility towards bilateral investment treaties in certain quarters. That decision was not only unnecessary (since the treaties could have been denounced without the need for a constitutional norm) but has also created unforeseen consequences for a state in need of foreign capital. This is an important lesson to be learned in Ecuador and by other governments.” Hernan Perez Loose, “International arbitration with Ecuador: a new legal minefield,” International Law Office Website, October 21, 2010, available at: http://www.internationallawoffice.com/newsletters/detail.aspx? g=b7740f30-d2ab-4603-a3c6-c3f3cc3ffeaa.

141 Osvaldo Hurtado, “Structural Problems of Ecuadorian Democracy,” 13 Temas de Economia y Politica, November 2009.

d. The Importance of the Oil SectorKatia Fach Gomez

 

Oil is one of Ecuador’s greatest treasures. Ecuador produces about 470,000 barrels of oil per day and its oil exports between January and May 2010 were U.S. $3589.4 million, representing 51% of Ecuador’s total revenue. (142) This strategic sector is regulated by a law of 1971, (143) which was codified in 1978 and has undergone several amendments since then. (144) The last reform was carried out in 2010 and follows the path of reforms in other similar countries such as Venezuela and Bolivia. (145) The objectives of this new law, whose “enactment process has been very controversial in Ecuador,” (146) are presented in the following explanatory memorandum:

The hydrocarbon law introduces provisions that enhance the hydrocarbon activity, increasing production levels of oil fields within a contractual framework to provide services; returning the ownership of the entire national production to the state and establishing in favor of contractors a fee per barrel produced, avoiding the fluctuations with the price of oil which in the past have benefited disproportionately the operating companies. (147)

Focusing on the new Article 16 of the Ecuadorian hydrocarbons law, it reinforces the same ideas allowing the state greater control over Ecuador's oil production and converts foreign companies into mere service providers. This represents an important change from previous contracts, which were production-sharing agreements. (148)

Since the law amending the Hydrocarbons Law was passed in June 2010, the Ecuadorian government has begun to individually renegotiate the terms of its contracts with foreign companies. Adhering to the deadlines set forth in the first transitory provision of the 2010 law, these companies have 120 or 180 days, (149) depending on whether they are dealing with essential or marginal oil fields, (150) to reach an agreement with Ecuador. Failing to do so, “the Ecuador's Oil Secretary will consider the contracts unilaterally terminated and establish the liquidation value of each contract and the method of payment.” (151) Upon completion of this chapter, the new service model contract had not yet been made public. Regarding the type of settlement mechanisms declared as admissible by this contract, the Ecuadorian press has echoed several possibilities: Arbitration at the Chilean Chamber of Commerce, Permanent Court of Arbitration at The Hague under UNCITRAL rules, the Quito Chamber of Commerce, etc. (152) ICSID is clearly not an option. (153)

These government actions have generated much controversy in the country. (154) Although the Ecuadorian government has recently stated that negotiations with the companies are progressing, (155) the above deadlines will have to become exhausted, that is, November 23 and January 23, respectively, to know for certain the position of the foreign oil companies. The possibility that these changes may generate new claims before ICSID should not be ruled out.

Without a doubt, this situation has created enormous uncertainty for foreign oil companies established in Ecuador. For example, in recent months, private oil production decreased significantly in Ecuador. Foreign companies argue that prevailing doubts about their future have made them reduce investment in their oil exploitation fields. This cut in oil production has also directly affected the Ecuadorian State, which has stopped receiving a very substantial amount of oil taxes. (156)

Along with this problem, other developments make some fear for the country's oil future: On the one hand, the government has laid off many workers in state-owned Petroecuador and there are fears that this company, accused of being unprofessional, could be privatized in the future. If this happens, it would violate many of the principles defended by Correa, which are reflected in the Ecuadorian Constitution. (157) On the other hand, the strategic alliance between Ecuador and Venezuela, which created a binational business model to improve the oil extraction in the country, has not been successful in terms of production. (158) This links up to other fears that will arise in the mid-long term: Correa could follow the example of ideologically similar countries and proceed to a wave of nationalizations that might lead to another round of international arbitration against Ecuador. (159) Furthermore, Ecuadorian petroleum wells, popularly known as the “crown jewels,” could be exhausted in the near future due to heavy oil alliances that Ecuador is forming with countries like Venezuela, China, Iran and Russia, which have become major oil exporters in the country (160) If this happens, Ecuador will be a country deeply in debt and in need of a new wave of foreign investment. Then, we'll see if American and European investors have lost their memories. It won’t be the first time in recent years that foreign oil companies are forced to accept the new conditions unilaterally determined by the Ecuadorian government. (161)

142 “Ecuador pone en vigencia Reforma Ley Hidrocarburos,” available at: http://www.reuters.com/article/ idARN2622907120100726 (last visited April 8, 2011).

143 Ley de Hidrocarburos, 1978. Decreto Supremo 2967, Registro Oficial No. 711, November 15, 1978, available at: www.cubaarqueologica.org/document/ecuador9.pdf (last visited April 8, 2011).

144 An important Ecuadorian regulation is “Law 42,” enacted in April 2006. It provides that the Ecuadorian state shall receive 99% of the revenues from oil sales above certain reference prices, despite contractual terms that provide it with a much smaller participation share. “Ecuador Oil: Reduced Investments,” Latin Business Chronicle, October 24, 2010, available at: http://www.latinbusinesschronicle.com/app/article.aspx?id=4468 (last visited April 8, 2011).

145 Katia Fach Gomez, “Environmental Protection and International Trade: Greening the Investment Arbitration?, (La proteccion del medio ambiente y el comercio internacional: ¿Se puede “pensar en verde” el arbitraje de inversiones?,” in Santiago Munoz Machado, ed., Comercio Exterior (Iustel 2009), pp. 205-255. Reflecting on populism in these three countries, Carlos de la Torre, “The Resurgence of Radical Populism in Latin America,’” 14 Constellations 384 (2007), available at: www3.interscience.wiley.com/journal/118514747/abstract (last visited April 8, 2011).

146 On October 10, 2010, the President sent the text for publication in the Official Gazette, even though Parliament had not yet ruled on it. Since the legislative deadlines to study the document had already finalized, Correa opted to continue with its processing leaving aside the Ecuadorian parliament. (“Correa anticipa que promulgara la Ley de Hidrocarburos al margen del Parlamento.” available at: http://www.elmundo.es/america/2010/07/24/noticias/ 1279994022.html (last visited April 8, 2011).

At an earlier stage, Correa had announced that he would call a referendum if the Court considered this law unconstitutional. From a legal point of view, it was noticed that the referendum would be unconstitutional. Correa’s announcement raised the following concerns: “It is worrying, however, that the announcement is made when the resolution does not exist, which can be interpreted as a message to the Constitutional Court. If the intention is to revoke a resolution of constitutional Court through consultation, the strategy is unconstitutional. If the purpose is to send messages to the judges, the strategy is dangerous and would set a bad precedent, encouraging any future government to try to influence the judges by such a method contrary to the basic principles of political civilization.

We need to understand what a rule of law, and the value of the principles, what are the responsibilities of each public function. An atmosphere of denigration of the laws, of whimsical public behavior that exploits a populist assembly system is prevailing now.” (“Resulta preocupante, en todo caso, que el anuncio se haga cuando la resolucion aun no existe, lo que puede interpretarse como un mensaje al TC. Si la intencion es revocar una resolucion del TC por via de consulta, la estrategia es inconstitucional. Si el proposito es enviar mensajes a los jueces, la estrategia es peligrosa y estableceria un pesimo precedente: que cualquier gobierno tratara en el futuro de influir sobre los juzgadores, ya del TC o de la CSJ, por semejante metodo contrario a los principios basicos de la civilizacion politica. Hace falta comprender en que consiste un Estado de Derecho, y el valor de los principios, cuales son las atribuciones de cada funcion publica. Esta prevaleciendo un ambiente de descredito de las leyes, de caprichosa conducta publica que explota un asambleismo populista.”). Instituto Ecuatoriano de Politica Economica. “La utilidad del plebiscito,” July 6, 2006, available a t : http://www.ieep.org.ec/index.php? option=com_content&task=view&id=254&Itemid=9 (last visited April 8, 2011).

147 “Las reformas previamente realizadas a la Ley de Hidrocarburos han atendido parcialmente las necesidades de cambio que requiere la dinamica del manejo de los hidrocarburos y sustancias asociadas; sin embargo, para atender las circunstancias actuales del sector resulta necesario reformar la Ley de Hidrocarburos, introduciendo disposiciones que permitan impulsar la actividad hidrocarburifera, incrementando los niveles de produccion de los campos petroleros, dentro de un esquema contractual de prestacion de servicios, que devuelva la titularidad de la totalidad de la produccion nacional a favor del Estado, estableciendo unicamente el reconocimiento de una tarifa por barril producido a favor de las Contratistas, que no fluctue en funcion del precio del petroleo, del cual se han beneficiado desproporcionadamente las companias operadoras.” Registro Oficial No. 244, Second Supplement July 27, 2010, available at: http://www.portalpetroleroecuatoriano.com/ley-de-hidrocarburos.html (last visited April 8, 2011).

148 “Nuevo modelo de contrato pone varias condiciones,” Expreso, July 27, 2010, available at: http://www.diarioexpreso. com/ediciones/2010/07/28/nacional/actualidad/nuevo-modelo-de-contrato-pone-varias-condiciones/ (last visited April 8, 2011).

149 The 120-day deadline applies to: Repsol (Spain-Argentina), operating Bloque 16: Ecuador TLC (Brasil-Japan) operating Bloque 18; Agip (Italy) operating Bloque 10; Petroriental (China) operating Bloques 14 and 17. The 180- day deadline applies to Petrobell (operating in Tiguino); Petrosud-Petroriva (Pindo, Palanda-Yuca Sur); Tecpecuador (Bermejo and Rayo); Ismocol-Colombia S.A. and Solo Petrol S.A. “Petroleras tienen hasta noviembre para analizar contratos,” La Agencia de Noticias del Ecuador y Sudamerica, August 11, 2010, available at: http://andes.info.ec/ ecuador/petroleras-tienen-hasta-noviembre-para-analizar-contratos-25572.html (last visited April 8, 2011).

150 In favor of this reform: “Reforma a la Ley de Hidrocarburos tiene ocho beneficios para el pais” La Agencia de Noticias del Ecuador y Sudamerica, July 26, 2010, available at: http://andes.info.ec/tema-del-dia/reforma-a-la-leyde- hidrocarburos-tiene-ocho-beneficios-para-el-pais-24056.html (last visited April 8, 2011) (reproducing a speech of the Ecuadorian Minister of nonrenewable natural resources); “Reforma a Ley de Hidrocarburos busca proteger los campos petroleros: Paco Velasco,” Ecuador National Assembly, September 16, 2010, available at: http:// www.asambleanacional.gov.ec/201009164247/noticias/boletines/reforma-a-ley-de-hidrocarburos-busca-protegerlos- campos-petroleros-paco-velasco.html (last visited April 8, 2011).

Against this reform: Stating that the law does not conform to the 2008 Constitution: Magali Orellana, “Proyecto de Reformas a Ley de Hidrocarburos. Ing. Magali Orellana,” Ecuador National Assembly, July 1, 2010, available at: http://asambleanacional.gov.ec/blogs/magali_orellana/2010/07/06/proyecto-de-reformas-a-ley-de-hidrocarburos-ingmagali- orellana/ (last visited April 8, 2011); pointing out that the law requires a larger process of reflection and should address additional issues such as full compensation of damages or abandonment processes, Alberto Acosta, “La reforma a la ley de hidrocarburos de Ecuador. Una lectura urgente,” El Polvorin, August 24, 2010, available at: http://elpolvorin.over-blog.es/article-la-reforma-a-la-ley-de-hidrocarburos-de-ecuador-una-lecturaurgente- 55905386.html (last visited April 8, 2011); Wilton Guaranda, “La necesidad imperiosa de reformar una Ley Caduca,” Adital, September 17, 2010, available at: http://www.adital.com.br/site/noticia.asp?lang=ES&cod=51029 (last visited April 8, 2011).

151 “Los contratos de participacion y de prestacion de servicios para la exploracion y explotacion de hidrocarburos que se encuentren suscritos se modificaran para adoptar el modelo reformado de prestacion de servicios para exploracion y explotacion de hidrocarburos contemplado en el articulo 16 de la Ley de Hidrocarburos en el plazo de hasta 120 dias, y los contratos suscritos bajo otras modalidades contractuales incluidos los contratos de campos marginales y los contratos de prestacion de servicios especificos suscritos entre Petroecuador y/o su filial Petroproduccion (actual EP PETROECUADOR) con las empresas Sociedad Internacional Petrolera S.A., filial de la Empresa Nacional del Petroleo de Chile, ENAP (campos MDC, Paraiso, Biguno y Huachito), Repsol YPF Ecuador S.A., Overseas Petroleum and Investment Corporation, CRS Resources (Ecuador) LDC y Murphy Ecuador Oil Company (campo Tivacuno) y Escuela Superior Politecnica del Litoral, ESPOL (campos de la Peninsula de Santa Elena, Gustavo Galindo Velasco), en el plazo de hasta 180 dias. Plazos que se contaran a partir de la vigencia de la presente Ley; caso contrario, la Secretaria de Hidrocarburos dara por terminados unilateralmente los contratos y fijara el valor de liquidacion de cada contrato y su forma de p.o.” Registro Oficial No. 244, July 27, 2010, available at: http://www.portalpetroleroecuatoriano.com/ley-de-hidrocarburos.html (last visited April 8, 2011).

152 “Compensacion en contratos petroleros,” El Universo, October 8, 2010, available at: http://www.eluniverso.com/ 2010/10/08/1/1356/compensacion-contratos-petroleros.html (last visited April 8, 2011); Sebastian Perry, “Ecuador champing at the BITs,” Latin Lawyer, August 12, 2010, available at: http://www.latinlawyer.com/lawfirms/article/ 40775/ecuador-champing-bits/ (last visited April 8, 2011).

153 The opinion of the Ecuadorian government has been very clear on this point for some time, Fernando Cabrera Diaz, “Ecuador threatens cancellation of oil contracts unless ICSID nixed as arbitration forum,” Investment Treaty News, August 28, 2008, available at: http://www.iisd.org/itn/2008/08/29/ecuador-threatens-cancellation-of-oilcontracts- unless-icsid-nixed-as-arbitration-forum/ (last visited April 8, 2011).

154 “Petroleras tienen 120 y 180 dias para quedarse o dejar Ecuador,” Radio Equinoccio, July 27, 2010, available at: http://www.radioequinoccio.com/index.php?option=com_content&view=article&id=1302:petroleras-tienen-120- y-180-dias-para-quedarse-o-dejar-ecuador&catid=1:ultimas-noticias&Itemid=2 (last visited April 8, 2011).

155 “Hay un acuerdo en un 99% con petroleras,” Actualidad, October 9, 2010, available at: http://www.hoy.com.ec/ noticias-ecuador/hay-acuerdo-en-un-99-con-petroleras-434572.html (last visited April 8, 2011).

156 “La produccion petrolera cayo a su nivel mas bajo,” Expreso, October 29, 2010, available at: http://www.diarioexpreso. com/ediciones/2010/10/30/nacional/actualidad/la-produccion-petrolera-cayo-a-su-nivel-mas-bajo/ (last visited April 8, 2011).

157 “Ecuador: renegociando el atraco,” Radio Informaremos, October 20, 2010, available at: http:// radioinformaremosmexico.wordpress.com/2010/10/23/ecuador-renegociando-el-atraco/ (last visited April 8, 2011).

158 “Operaciones Rio Napo no pudo levantar la produccion de Sacha,” Expreso, November 3, 2010, available at: http://www.diario-expreso.com/ediciones/2010/11/03/nacional/actualidad/operaciones-rio-napo-no-pudo-levantar-laproduccion- de-sacha/ (last visited April 8, 2011); Ana Zarzuela, “La diplomacia energetica de Chavez deja a Ecuador, Cuba y Bolivia en manos de China,” Intelligence & Capital News, October 20, 2010, available at: http:// www.icnr.es/articulo.php?n=101020013554 (last visited April 8, 2011).

159 In relation to recent nationalizations in Venezuela and Bolivia, “Venezuela: mas inversiones en el sector petrolero y expropiaciones,” 17 Puentes Quincenal 9 (2010) available at: http://ictsd.org/i/news/puentesquincenal/92715/ (last visited April 8, 2011); Carlos Mesa, “Evo Morales pierde el halo de mito intocable,” El Pais, May 21, 2010, available at: http://www.elpais.com/articulo/opinion/Evo/Morales/pierde/halo/mito/intocable/elpepiopi/ 20100521elpepiopi_12/Tes (last visted April 8, 2011).

160 Criticizing this Ecuadorian self-deadlock, Ana Zarzuela, “La segunda ‘revolucion petrolera’ de Correa condena a Ecuador, lo atrapa en su propia trampa para las multinacionales y lo hipoteca en brazos de China,” Intelligence & Capital News, September 22, 2010, available at: http://www.icnr.es/articulo.php?n=100922030008 (last visited April 8, 2011).

161 In relation to unilateral renegotiations that occurred in the year 2008, see “Petrobras Acepto Entregar Mas Recursos Petroleros a Ecuador” El Universo, October 21, 2008, available at: http://www.eluniverso.com/ 2008/10/21/0001/9/FF9DD328FB6D4A9E924A43BB2A19573E.html (last visited April 8, 2011); Katerine Erazo, “Ecuador, Andes Petroleum Likely to Sign New Production Contract,” Rigzone, July 28, 2008, available at: http:// www.rigzone.com/news/article.asp?a_id=64777 (last visited April 8, 2011).

CONCLUSIONKatia Fach Gomez

 

When Rafael Correa became president of Ecuador in 2007, he generated many changes throughout the country. Among them, and as an embodiment of the political tenets of the new president, Ecuador sharpened its legal imagination to disengage from international commitments that, once assumed in the past, have now became unacceptable allegiances. Regarding international arbitration, the Constituent Assembly agreed to incorporate Article 422 into the new Constitution, preventing Ecuador from yielding its sovereign jurisdiction beyond the Latin American arena. Furthermore, the Ecuadorian executive revived at first a sort of exacerbated Calvo doctrine and issued drastic statements proclaiming its willingness to denounce ICSID and the BITs that were in effect at that time. Completing this scenario, the Constitutional Court of Ecuador has harshly attacked the BITs negotiated by previous Ecuadorian governments. Their arguments, identical to the proclamations of President Correa, may raise fears in regards to the separation of powers in Ecuador.

Although the Ecuadorian legal machinery has achieved these goals on paper, the reality is that the decoupling from the international investment and arbitration scene is nowadays less intense than expected. This is due in part to the BITs having internal mechanisms that protect themselves from sudden death. On the other hand, it is the Ecuadorian government itself, which has been recently controlling its anti-arbitral impetus. While Ecuador is currently using its bargaining power to impose less favorable economic conditions on foreign oil companies, sometimes the state is also consciously authorizing future disputes to be resolved outside the Ecuadorian, and even Latin American, judicial and arbitral sphere. Motivations behind these “controlled capitulations” are difficult to prove. Depending on the observer’s point of view, the last movements of Correa's government regarding international investments either show its laudable desire to improve the Ecuadorian image abroad, reflect the weaknesses of the Ecuadorian state and its great need for foreign money, or have begun to betray the executive’s arbitrariness with respect to its ideological and economic non-Western allies. Only time will tell what the real motivations behind the current legal and political decisions of the Ecuadorian government on investments are. Additionally, it is a matter of time before it is seen how foreign investment statistics in Ecuador will evolve, as a result of both the strong constitutional and judicial anti-arbitration proclamations and the exceptions that are supported in the Ecuadorian legislative and contractual practice. These exceptions raise several legal questions because it is possible that Article 422 of the Ecuadorian Constitution may be invoked in the future against the very same contracts and agreements that are now excepted. The random application of Article 422 generates a legal insecurity that is not usually well received by foreign investors.

Undoubtedly, it is clearly desirable that, when Correa’s term ends, his successors will continue to go after the-difficult-to-define and more-difficult-to-achieve sumak kawsay. General interest objectives like this one should be excluded from the economic and political oscillations that Ecuador may experience. In the last couple of decades, the country has already suffered from the not-always-peaceful alternation in power of political parties favorable and hostile to international investment and to international mechanisms established to resolve these conflicts. A future government that does not share Correa’s approach can be faced with difficult situations, such as how to reconcile its willingness to sign treaties or international instruments in light of Article 422 of the Ecuadorian Constitution. In the event this situation arises, the Ecuadorian Constitution may be amended in the mid-term.

About the authorKatia Fach Gomez

 
  • Professor of Private International Law at Law University, Saragossa (Spain)
  • Member of the Spanish Research Projects DER2009-11 702 (Sub JURI) and e-PROCIFIS (Ref S14/30)
  • Contact details - E-mail: katiafachgomez@gmail.com

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