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6 October 2012
Translated by Anoosha Boralessa (June 2015). Not revised by bilaterals.org or any organization or person.
Ecuador / ICSID : A new revolt likely to have regional repercussions
Nicolas Boeglin (*)
Ecuador officially announced on 8 October 2012 that it will request the annulment of the recent decision of the International Centre for the Settlement of Investment Disputes (ICSID) which was communicated on 5 October 2012 (ICSID Decision ARB/06/11). This ruling orders Ecuador to compensate two US oil companies for a total of 1,769 million dollars because it held that Ecuador’s conduct constituted a de facto expropriation that, inter alia, violated several articles of the US/Ecuador 1993 Bilateral Protection and Promotion Investment Treaty 1993.
A SENSITIVE CONTEXT
Ecuador, which is together with Bolivia and Venezuela, one of the three states that denounced the Washington Convention 1965 establishing ICSID, announced that it will base its request for annulment of the ICSID decision on the dissenting opinion of arbitrator Brigitte Stern, a French national, who took the position in her final conclusions, that the parameters for jurisdiction of ICSID arbitrations “were completely ignored by the majority of the tribunal” (“it is simply that result of the limited access to international arbitration, which the majority has blatantly disregarded”). It is interesting to note that Ecuador had refused to appoint an arbitrator for this case, and that the arbitrator Brigitte Stern was appointed by the ICSID Administrative Council as well as the Chairman of the Tribunal, Yves Fortier (a Canadian national (para 11 of the aforementioned decision).
The President of Ecuador, Rafael Correa, considers that this decision constitutes a “new abuse” on the part of ICSID. It is a timely decision for a good number of countries in the region that over recent years have displayed a growing hostility to the way ICSID works, noting in particular the proliferation of claims against Latin American states. The announcement of Ecuador’s decision coincides with the electoral results in Venezuela which produced a victory for President Hugo Chavez. Ecuador also seems to be wanting to test the wave of sympathy that the “ Assange matter” brought it in Latin America and which was manifested in the Organization of American States (OAS) by the presence (which was somewhat unaccustomed) of 12 Ministers of Foreign Affairs who had been keen to travel to Washington last August (Note 1).
ICSID IN THE CONTEXT OF LATIN AMERICA
Contrary to a widespread misconception that ICSID is generally supported in the Americas, there are a number of states that continue to keep a safe distance from this World Bank mechanism. The official ICSID statistics indicate that 42% of the cases that have been decided have come from the American hemisphere (30% from South America ; 7% from Central America and the Caribbean and 5% from the Canada – Mexico – US area). That said, the following clarifications must be made :
– In the area near Central America, the Dominican Republic is not a party to the ICSID Convention. The same goes for Canada and Cuba.
– Likewise, Mexico remains cautious with respect to ICSID (a stance that some have qualified as “wise and rebellious”).
– Within the community of English-speaking Caribbean nations, the following states are not party to the ICSID Convention : Antigua and Barbuda ; Belize, Dominica (Commonwealth of) and Suriname.
– In South America, Brazil has neither ratified nor even signed the Convention and there is no sign that gives rise to a presumption that the 6th global economy is interested in doing so.
BITS OR THE RELAUNCH OF RECOURSE TO ICSID
It should be recalled that up until 1996, ICSID had functioned in a highly sporadic manner :
– 1972 was the date of the first case (the only one to be filed that year) ;
– 1974 followed with 4 claims being filed ;
– In some years, not a single claim has been registered (1973, 1975, 1979, 1980, 1985, 1988, 1990 and 1991) according to the official statistics (graph p 7, ICSID Cases - Statistics, no. 2012 – 1). The surge in the number of cases per year since 1996 (1997 : 10 cases per year v. 2011 : 38 cases per year), which some experts qualify as a genuine “proliferation” (see the chart in Patxi Zabalo’s study, p. 3) can be attributed to a number of bilateral investment protection and promotion treaties (better known as “BITs”) signed from the 1990s and which constitute 63% of the basis of consent for ICSID jurisdiction (graph p 10, ICSID Cases - Statistics, no. 2012 – 1). This percentage rose to 78% for cases registered in 2011 alone. To take a valuable example for French investment abroad, the 58 BITs signed by Argentina in the 1990s partly explain why it is the State with the highest number of ICSID claims filed against it : Argentina became a case study, the subject of numerous analyses on the part of international investment law specialists. However some economists, leading experts on the case of Argentina, reach an entirely different conclusion : these bilateral treaties pose genuine obstacles to the economic development of Latin American Countries.
HOSTILITY DISPLAYED TO ICSID
It is in this climate that Bolivia decided to take the first step by officially denouncing the Washington Convention 1965 (it notified ICSID of its withdrawal in May 2007 and this was effective from November 2007). Bolivia was followed by Ecuador (denunciation notified in July 2009, effective January 2010) (Note 2). Venezuela officially announced its withdrawal on 24 January 2012 and this took effect in July 2012. As for Argentina, a state that is signatory to 58 BITs (most of which were signed between 1990 and 1995), a draft law setting out the case for withdrawal has been in circulation in the Argentine Congress since 21 March 2012.
In contrast to Venezuela and Bolivia, Ecuador is at the same time denouncing about ten BITs, notably those concluded with Germany and the UK. For its part, Venezuela preceded its denunciation of the ICSID Convention in Jan 2012 by denouncing its BIT with Holland in 2008 : one reads that this BIT was chosen because :
“The Dutch BIT must have been particularly troublesome for the country because it has formed the basis for at least 10 ICSID claims against Venezuela (Holland is often chosen by enterprises of other countries to register their subsidiaries and to structure their investments).” (Note 3)
PERSPECTIVES FOR THE FUTURE
For now, Latin American states are the only ones in the world to have denounced the ICSID Convention. Ecuador had announced that it would make an appeal to regional solidarity in its battle with ICSID, through an intervention of its Minister for Foreign Affairs at a meeting of the Community of Latin American and Caribbean States (CELAC) on 10 October. This announcement also refers to several initiatives striving to seek an alternative mechanism to ICSID in the region. A recent conference organized by the Chamber of Arbitration in Caracas presents the idea of using the Union of Nations of South American Nations as a regional space to settle disputes between foreign investors and States (see programme) : it is an idea that was launched some years ago and that is still not without serious challenges for the region. Recently some universities in Colombia have proposed to draft a “Decalogue de propositions conciliatrices” to try to stamp out the growing hostility to ICSID in Latin American public opinion : the recent image of the El Salvadorian Catholic Church imploring ICSID arbitrators to show some “compassion” in the Pacific Rim case (the name of the Canadian mining company) in 2010 remains fresh in many minds. (Note 4).
The recent appeal for “regional solidarity” presented by Ecuador will surely be echoed by different regional organizations in Latin America, as this is the only region in the entire world that, right from the early 60s, demonstrated its extreme hostility to the establishment of ICSID. On this matter, it should be recalled that the first draft of the Convention was prepared in 1963 and had been approved by the Board of Governors of the World Bank on 10 September 1964 at the Annual Meeting of the World Bank held in Tokyo. The Latin American states (as well as Iraq and the Philippines) had thus voted against (this vote is referred to in the specialized literature as the “el No of Tokyo”). So these states are : Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela (Note 5).
(*) Professor of Public International Law, Law Faculty, University of Costa Rica (UCR)
Note 1 : Ecuador was able to count on the presence of 12 Ministers of Foreign Affairs (Argentina, Chile, Colombia, Ecuador, Haiti, Guyana, Mexico, Paraguay, Peru, the Dominican Republic, Uruguay and Venezuela) and a Vice Minister (Guatemala) during the Consultative Meeting of the Foreign Relation Ministers in the Organization of American States (OAS) on 24 August 2012 (this was an “extraordinary” meeting and convening it was voted upon (three against (United States, Canada and Trinidad and Tobago) ; 35 for and 5 abstentions (including Panama and Honduras).
Note 2 : Cf. MALIK M., La dénonciation de la Convention de Washington du 18 mars 1965 par la Bolivie et l’Equateur, Mémoire, 2010.
Note 3 : Cf. RIPINSKY S., “Le Venezuela se retire du CIRDI : les implications”, in Investment Treaty News (ITN), Avril 2012, pp. 10-12.
Note 4 : Cf : Press release, “Arzobispo capitalino pide piedad a tribunal internacional en controversia minera” Prensa Gráfica, 5 agosto 2010. On this matter, see press release, “La Pacific Rim y sus demandas : crece oposicíon en El Salvador” agosto 2010.
Note 5 : Cf. ICSID, History of the ICSID Convention, Documents Concerning the Origin and the Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of other States, Washington, DC, ICSID, vol. II – 1, pp. 606 – 608. Cf. also FACH GOMEZ K., “Latin America and ICSID : David versus Goliath”, at p 2 : Some authors writing in English also make reference to the Spanish expression “El No-de-Tokyo”. See for example, VINCENTELLI I.A.. “The Uncertain Future of ICSID in Latin America”, Research Paper, December 2009.. pp. 9-10.