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Ecuador’s "shock doctrine" referendum on ISDS

Photo: Stop Corporate Impunity

11 March 2024

Ecuador’s "shock doctrine" referendum on ISDS

This is an excerpt from the Trade and Investment Research Project bulletin from the Canadian Centre for Policy Alternatives

On April 21, amidst an ongoing public order crisis, Ecuadorians will go to the polls to answer 10 questions in a referendum promised by President Daniel Noboa during last year’s election campaign. Most of those questions involve security and criminal law reforms related to the current crisis; one asks whether international arbitration for investment disputes should be recognized in Ecuador.

We should underline what is happening here: Noboa is using the cover of internal conflict to bring investor-state dispute settlement (ISDS) back to Ecuador, in what a former Constitutional Court member calls a "democratic disaster." The shock doctrine–type move appears to have the full support of Canadian trade officials as they prepare to launch free trade talks with Ecuador, as well as Canada’s Quito-based ambassador, Stephen Potter. More on that in a second.

According to Ecuador’s trade minister, Sonsoles García, speaking to investors at the Prospectors and Developers Association of Canada annual conference in Toronto last week, the referendum question on ISDS is part of the Noboa government’s plan to bring more mining investment to the country. Following a bilateral meeting on February 1, Canada’s trade minister, Mary Ng, "relayed her support" to García for her leadership on "strengthening Ecuador’s commercial environment."

According to Pedro Labayen Herrera of the Centre for Economic and Policy Research (CEPR), the ISDS question "is likely to face pushback from the left." Article 422 of Ecuador’s constitution, which was adopted by popular referendum in 2008, requires international arbitration to be handled by regional arbitral bodies. The Correa government (2007–2017) subsequently withdrew Ecuador from the ICSID Convention and terminated the country’s investment treaties, including a Foreign Investment Protection Agreement (FIPA) with Canada. That treaty’s long sunset clause continues to protect Canadian investors established in Ecuador in 2018 for a further 15 years (until 2033).

The previous chaotic and short-lived government of Guillermo Lasso moved to rejoin ICSID in 2021, but Article 422 "has nevertheless prevented Ecuador from signing bilateral investment treaties (BITs) or other treaties with ISDS arbitration clauses," writes Herrera. For example, the Constitutional Court denied Ecuador’s national congress the possibility of including an ISDS process, with recourse to ICSID, in the recently passed Ecuador-Costa Rica FTA.

A "yes" vote on the vaguely worded investment arbitration question in Ecuador’s April 21 referendum would represent a massive backslide for a country that had so successfully and inspiringly rolled back the endemically biased ISDS regime. A "no" vote would preserve the Correa government’s wise reforms with immediate positive effect on looming Canada-Ecuador trade talks, in that ISDS would need to be taken off the negotiating table.

"A particular area of interest as we head into negotiations relates to investment," said Doug Forsyth from Global Affairs Canada (GAC) in his February 15 testimony before the House of Commons trade committee (CIIT). "As of 2022, Canada had the largest stock of foreign direct investment in Ecuador of any country at $2.6 billion, led by investments in the mining sector. Enforcement of investment chapter obligations through investor-state dispute settlement, ISDS, is a key interest for Canadian industry stakeholders." The trade committee held three sessions last month on Canada’s plans for an Ecuador FTA, as requested by NDP trade critic Richard Cannings.

Cannings and Bloc MP Simon-Pierre Savard-Tremblay asked Forsyth and GAC investment policy expert Ruben East repeatedly why Canada would want to drag Ecuador back into the mire of ISDS when 1) it contradicts the government’s view of ISDS in NAFTA (we got rid of it), 2) other countries, including the EU, are withdrawing from treaties to preserve environmental policy space, and 3) Canadian mining companies, the main users of Canadian investment treaties, are an important source of human, Indigenous, and environmental rights violations. The officials’ responses varied between:

  • ISDS is important to our stakeholders.
  • ISDS is a proven attractor of new investment (it isn’t).
  • Stakeholders need an effective way to enforce the substantive obligations in the investment chapter.
  • Stakeholders can’t enforce investment treaty protections in domestic courts, so they need ISDS.
  • Due to the termination of the Canada-Ecuador FIPA, until we sign an FTA that includes ISDS, stakeholders "would not have that type of protection, and neither would they have the ability to use ISDS."

You can read the full GAC testimony here. A video of my testimony to the committee is here, but you can also read it and the testimonies of MiningWatch Canada and Amnesty International Canada here. Our three organizations, with TIRP researchers Kyla Tienhaara and Ronald Labonté, published a joint op-ed on the Ecuador FTA in the Hill Times on February 26, in which we argue: "it is opportunistic for Canada to fast-track a contentious free trade deal that could exacerbate an already dire human rights situation. It beggars belief that the government is still pushing for investor protections that the UN has warned pose ’catastrophic’ consequences for the environment and human rights."

I encourage you to watch, listen to, or read the baldly ideological, highly undiplomatic testimony of Ambassador Potter the following week (read in full here). Potter blames the Correa government for virtually all of Ecuador’s current ills. Poverty-beating programs established by Correa and dismantled by subsequent governments are brushed off as "poor-quality investment" and "entitlement programs." In contrast, the last two governments—which rolled back the social state in return for IMF loans—and current Noboa presidency "have had a common strategy for economic transition" that Canada can get behind: "responsible fiscal management, opening up the country to investments, and facilitating increased exports."

The end of Potter’s presentation focused on the importance of an Ecuador FTA and ISDS to Canadian mining interests. In the Q&A session he shamefully shed doubt on the legitimacy of the Shuar Arutam people’s (PSHA) claim to land that overlaps the Warintza mining project owned by B.C.-based Solaris Resources—a claim supported by Ecuador’s two largest Indigenous organizations in powerful statements issued last week.

On February 29, ahead of the PDAC conference in Toronto, the PSHA filed a complaint against Solaris before the B.C. Securities Commission for failure to properly inform shareholders that the company lacks a "social licence" to proceed. "This lack of [free, prior and informed consent] puts the viability of the project at risk and opens the door to future litigation, similar to legal injunctions that have paralyzed neighboring mining projects," explains a press statement on the complaint.

The complaint and Noboa’s trip to Toronto drew protests outside Canada’s embassy in Quito (pictured above) and public condemnation from Ecuador’s Indigenous peoples. On March 4, a letter signed by more than 80 organizations—including Acción Ecológica, Quito Sin Minería, PSHA, Amazon Watch, the Ecumenical Commission on Human Rights and the Regional Foundation for Human Rights Counselling—outlined concerns about the call for more mining investment and Canada’s role in promoting the sector.

"[W]e the Canadian Embassy permanently exercises undue economic diplomacy in the interest of Canadian mining companies, ignoring the social and legal legitimacy of Indigenous peoples, closing itself off to dialogue with their representatives (as was the case with the request for a meeting by President of the Shuar Arutam People Jaime Palomino), and fomenting division between communities," the letter read. On March 7, the Confederation of Indigenous Nationalities of Ecuador (CONAIE) also denounced Noboa’s trip to Canada and his interest in including ISDS in the Canadian FTA.

As a result, Ecuadorian civil society is rapidly mobilizing against the Canada-Ecuador FTA as it did to oppose the recently passed China-Ecuador trade agreement. Coming back the April 21 referendum, Transnational Institute recently sent a note to ISDS campaigners recommending urgent action to support Ecuadorian groups opposing changes to Article 422 prohibiting ISDS. This could take the form of:

  • Op-eds in the media to denounce the referendum and the need to keep Article 422 as it is;
  • Declarations from international organizations supporting Article 422;
  • Declarations from academics, judges, well-known people in the media, supporting Article 422;
  • Contacting allied or affiliated organizations in Ecuador to help with funding or with social media work and ideas for influencing public opinion.

 source: Trade and Investment Research Project