Ecuador's Re-Accession to the ICSID Convention Highlights Domestic Constitutional Controversy

By Diego Luis Alonso Massa, 23 June 2021

On 21 June 2021, Ecuador’s government signed an agreement to re-join the International Centre for Settlement of Investment Disputes (ICSID) – ten years after leaving it – reportedly as part of an strategy to attract more investment to revive its economy following a recession brought about by the coronavirus pandemic.

In this regard, nations like Mexico have required that Ecuador re-join the ICSID Convention as a condition for its accession to the Pacific Alliance Free Trade Agreement (PAFTA). Indeed, Chapter 10 (Art. 10.16) of that FTA provides that an investor may institute arbitration proceedings against a Member State before the ICSID, or also they can initiate ad hoc arbitration if the parties so agree.

The PAFTA is currently composed of four members: Chile, Colombia, Mexico and Peru, with negotiations underway with other Observer States to become Associated States. Such Associated States include: Australia, Canada, New Zealand and Singapore. The Republic of South Korea and the Republic of Ecuador have requested to initiate negotiations to acquire Associated State status. 

Ecuador first withdrew from ICSID in 2009, with former President Rafael Correa arguing that membership entailed an unconstitutional allocation of sovereign jurisdiction to international arbitration. At the time, Ecuador was also defending several cases brought by oil companies following a 2007 change in the tax rules that allegedly conflicted with their production contracts.

Earlier this month, however, Ecuador agreed to pay French oil company Perenco US$ 374 million and interest in compliance with an ICSID award.

According to an ICSID press release, Ecuador is yet to ratify the agreement so that it can take effect. Ecuador’s Constitution requires the National Assembly to first validate all international alliances, reports Nasdaq.

Nonetheless, a controversy has arisen as to the next steps that Ecuador needs to take. 

Indeed, the signature of Ecuadorian Ambassador to the United States, Ms. Yvonne Baki, does not suffice to legally bind Ecuador again. However, the need for the ratification of the signature by the National Assembly is currently an open question.

Minister of Production, Industry and Foreign Trade, Julio José Prado welcomed the news that Ambassador Baki had signed the ICSID Convention stating that the next step is for the Constitutional Court to rule on the issue. In this regard, Article 438* Ecuador's Constitution requires that the Constitutional Court first deliver a binding opinion before a treaty can be ratified by the National Assembly. 

Former Minister of Economy of ex-President Rafael Correa, Mr. Diego Borja, also expressed the view that a ruling from the Constitutional Court is required in terms of Articles 419 (7)** and 438* of the Ecuadorian Constitution, tweeting that the Constitution otherwise prohibits the signing of treaties providing for the resolution of disputes between the State and individuals.

Additionally, former presidential runner-up, Mr. Andrés Arauz, stated in tweet that the ICSID Convention does not comply with Article 422*** of the Constitution because treaties cannot be signed in which the Ecuadorian State surrenders sovereign jurisdiction to international arbitration between the State and private natural or legal persons. 

Likewise, Congressman Pabel Muñoz tweeted that the mere signing of the Treaty by Ambassador Baki violates the Constitution. 

On the other hand, local news reports that Mr. Edgar Neira Orellana, a constitutional expert, believes that the ICSID Convention does not entail the surrender of sovereign jurisdiction – making Ecuador's new accession to the ICSID Convention perfectly constitutional. 

In view of the above, it will be interesting to follow the next steps taken by the government to give effect to Ecuador’s re-accession to the ICSID Convention. 

Until then, Ambassador Baki's signature is a mere gesture to foreign investors. In fact, without ratification – by act of the National Assembly with or without a binding opinion from the Constitutional Court – an international legal obligation on the part of Ecuador is highly unlikely to result. 

Furthermore, even if the new accession to the ICSID Convention were to be ratified by the National Assembly, it should be recalled that recently installed President Guillermo Lasso currently lacks an absolute majority in the Legislature.

*[Unofficial translation]: Article 438: The Constitutional Court shall deliver a prior and binding ruling on constitutionality in the following cases, in addition to those determined by law: 1. International treaties, prior to their ratification by the National Assembly. 2. Convening of popular consultations at the national level or at the level of the decentralised autonomous governments. 3. Objections of unconstitutionality raised by the President of the Republic in the process of law-making. 

**[Unofficial translation]: Article 419: Prior approval by the National Assembly shall be required in order to ratify or denounce international treaties where:

  1. They involve territorial or boundary matters.
  2. They set up political or military alliances.
  3. They contain a commitment to enact, amend or repeal a law.
  4. They relate to the rights and guarantees laid down in the Constitution.
  5. They subject the state's economic policy as laid out in its National Development Plan to conditions set by international financial institutions or transnational companies.
  6. They bind the country into integration and trade agreements.
  7. They confer competences inherent to the internal legal order to an international or supranational body.
  8. They compromise the natural heritage, especially water, biodiversity and its genetic resources.

***[Unofficial translation]: Article 422: No international treaties or instruments may be signed in which the Ecuadorian State surrenders sovereign jurisdiction to international arbitration bodies with regard to contractual or commercial disputes between the State and private natural or legal persons.

Exceptions are treaties and international instruments providing for the settlement of disputes between States and citizens in Latin America by regional arbitration bodies or by jurisdictional bodies appointed by the signatory countries. The involvement of judges of the States who as such or their nationals are party to the dispute is not allowed.

For disputes involving foreign debt, the Ecuadorian state will foster arbitration solutions based on the origin of the debt and in accordance with the principles of transparency, equity and international justice.