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Ecuador becomes second state to exit ICSID; approximately two-thirds of Ecuador's BIT claims were ICSID-based

publication date: Jul 17, 2009
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By Luke Eric Peterson

The Republic of Ecuador has sent a notification to the President of the World Bank Robert Zoellick setting in motion the country’s withdrawal from the International Centre for Settlement of Investment Disputes (ICSID).

In a note dated July 3, 2009, and seen by IAReporter, Ecuador’s Foreign Minister Fander Falconi Benitez notified Mr. Zoellick that Ecuador was following through with its long-standing threat to exit the World Bank’s investor-state arbitration facility.

In the brief letter, the Foreign Minister refers explicitly to the terms of a new constitution approved last year in a popular referendum. Article 422 of the constitution contains a stricture against international agreements which provide for investor-state arbitration, although the constitution does exempt regional (Latin American) arbitration from that stipulation.

Attached to the letter is a Decree dated July 2, 2009 wherein Ecuador’s President Rafael Correa, and Minister Falconi denounce the ICSID Convention.

As is provided under Article 71 of the Convention establishing the ICSID, Ecuador’s denunciation will take effect 6 months from the date of its Notice. Late last week, The ICSID announced that it received Ecuador’s note on July 6, 2009, and that the denunciation will become effective from January 7, 2010.

ICSID’s new Secretary-General took up post only this month

Ecuador becomes the second state to exit the ICSID system, following an earlier move by Bolivia in 2007. This latest development comes less than a month after new Secretary-General Meg Kinnear took the helm of the Washington-based centre.

Ms. Kinnear, the former head of Canada’s in-house defence team for trade and investment matters, was selected by a search committee last year to take up the Secretary-General post.

She faces a formidable task, as antipathy towards the ICSID has been on the rise in recent years. As the most visible forum for resolution of foreign investment disputes, the Centre has borne the lion’s share of criticism from critics of foreign investment arbitration.

In recent months, Ecuador has been particularly angered by a series of rulings ordering the Republic to refrain from collecting hundreds of Millions of Dollars in windfall levy payments from energy companies – at least while ICSID arbitrators examine whether such levies breach the terms of investment contracts and/or treaties.

(Click here for more on details on a provisional measures ruling in one of these cases).

It remains to be seen whether investors will continue to bring claims to ICSID – seeking to test the consent-to-arbitration clauses contained in various bilateral investment treaties to which Ecuador remains bound.

Approximately two-thirds of claims to date have gone to ICSID

To date, the majority of known claims against Ecuador have been brought to the ICSID, however a significant subset of claims have been brought under non-ICSID auspices. A total of 13 investor-state claims have been brought to ICSID, although several of these were contract-based rather than treaty-based claims.

Meanwhile, IAReporter is aware of at least 6 treaty-based claims brought against Ecuador under non-ICSID auspices.

In addition to well-publicized UNCITRAL rules arbitrations with Occidental and Encana over Value Added Tax disputes, Ecuador is involved in another high-stakes UNCITRAL arbitration with the Chevron energy company in a denial of justice claim.

As previously reported in a recent edition of IAReporter, the Republic was also served with a Request for Arbitration by Andes Petroleum in a dispute over the so-called windfall levy in the energy sector. However, that dispute is understood to have been largely resolved.

Recently, two claimants have filed UNCITRAL rules claims against Ecuador. In one case, Ulysseas, Inc. is suing under the US-Ecuador bilateral investment treaty in relation to a dispute over an energy-producing barge.

In the other, a Bolivian company, Unete Telecomunicaciones, has recently filed an UNCITRAL claim under the Bolivia-Ecuador BIT in relation to a World Bank-funded contract for the development of “telecentro” communications kiosks. These kiosks were intended to provide telephone and internet access for citizens in remote rural areas of Ecuador, however Unete alleges that Ecuador has thwarted the implementation of the project.

Investment Arbitration Reporter is a specialized news publication tracking developments in the area of international investment law and policy.

The publication does not offer legal or financial advice or recommendations of any kind.
To offer news-tips or comments, email the Editor, Luke Eric Peterson, at: editor@iareporter.com
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Investment Arbitration Reporter is a news & analysis service tracking investor state dispute settlement (ISDS) arbitration claims.

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