Ecuador continues exit from ICSID

By Fernando Carbrera Diaz, Investment Treaty News
8 June 2009

Ecuadorian president Rafael Correa announced on May 30 that his country would be denouncing the International Centre for Settlement of Investment Disputes (ICSID), calling the World Bank’s arbitration facility an atrocity and claiming that his government was working on a regional alternative involving the South American Union (UNASUR).

In remarks made on the weekly radio program, ‘Dialogue with the President,’ Correa said withdrawing from ICSID is necessary for “the liberation of our countries because this [ICSID] signifies colonialism, slavery with respect to transnationals, with respect to Washington, with respect to the World Bank and we cannot tolerate this.”

As ITN reported in August 2008, Ecuador’s Oil and Mining Minister at the time, Galo Chiriboga, also questioned the impartiality of ICSID arbitration, at a point when Ecuador faced over US$10 billion in claims at the World Bank’s arbitration facility. Most of the pending claims stem from a 2006 tax on oil company ‘windfall profits’.

Ecuadorians approved a new constitution in September which makes it unconstitutional for the country to submit itself to arbitration outside of Latin America.

Hernán Pérez Loose, a partner at Quito-based Coronel & Pérez Abogados and former Attorney General of Ecuador, maintains that the constitutional change does not affect existing contracts or Bilateral Investment Treaties (BITS), on the grounds that governments cannot use domestic legislation to shield themselves from commitments made under international law.

Ecuador has been working vigorously to renegotiate existing contracts with oil companies. Last year agreements were reached with Andes Petroleum (owned by China’s state oil company) and Brazilian state-owned Petrobras. A source with knowledge of the negotiations tells ITN that in both these cases the renegotiated contracts include arbitration clauses under UNCITRAL Rules administered by the Permanent Court for Arbitration in Chile.

In March, Ecuador also reached an interim deal with Argentinean-Spanish oil company Repsol, under which both sides agreed not to advance their ICSID arbitration pending final negotiations. Repsol has also agreed to begin to pay US$444.7 million owed under the windfall profits tax. A final agreement with the company is expected later this year, and will presumably include regional arbitration.

However, Ecuador has not reached agreements with the oil companies Burlington and Perenco, both of which have initiated ICSID arbitration against the Andean nation.

Ecuador has also denounced 9 BITs, mostly with other developing countries in the region. The Attorney General Diego García Carrión said that these BITs were cancelled because they did not foster foreign investment. Many of these BITs included ICSID arbitration clauses which have now been eliminated.

A government official who wished to remain anonymous tells ITN that Ecuador is currently working on a model BIT that will be used to initiate negotiations with other states on the remaining 17 BITs it is a party to. The Ecuadorean model BIT is also expected to limit dispute settlement to regional arbitration fora.