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In blow to Canadian mining companies, Ecuador rejects international arbitration

Investor-state dispute settlements allow foreign investors to sue governments for policies that could weaken their profitability

GlobalizationLatin America and the CaribbeanSocial Movements

Members of Mujeres Amazónicas, an Indigenous environmental rights collective, march in Quito, Ecuador. Photo courtesy Mujeres Amazónicas/Instagram.

On April 22, Ecuadorian President Daniel Noboa held a public referendum on 11 proposals, most of which concerned the country’s collapsing security situation.

Since Ecuador turned away from socialist-oriented policies in 2017, it has seen a shocking rise in poverty, violence, and armed gang activity.

Following coordinated gang attacks in January 2024, Noboa asserted that Ecuador is involved in a state of “internal armed conflict” and vowed to take the fight to drug traffickers and criminal organizations. April’s referendum was intended to give his security services more leeway in their campaign to combat gang violence organized crime.

Tucked inside the referendum was a question that had nothing to do with security. It was Question D: “Do you agree that the Ecuadorian State recognizes international arbitration as a method to resolve disputes in terms of investment, contractual or commercial?”

In a victory for the country’s social movements, 65 percent of voters rejected a return to international arbitration.

Since 2008, Ecuador has spurned investor-state dispute settlement, or ISDS, a provision that allows companies to sue countries for alleged violations of trade agreements. In practice, this means companies can take states to court if their profits are put at risk by government policies.

Had Question D been approved, Ecuador likely would have revised its constitution to allow international arbitration—something that Canadian officials have been pursuing in ongoing free trade negotiations with the Ecuadorian government.

Ecuador’s experience with ISDS has been costly. Since 1986, the government has been forced to pay a total of US$10 billion for alleged breaches of its obligations to foreign investors.

As the International Institute for Sustainable Development explains:

Ecuador has been on the receiving end of several costly compensation awards by ISDS tribunals in favour of investors. For example, in 2012, a tribunal ordered Ecuador to pay the US oil company Occidental over USD$1.5 billion, one of the largest amounts a state had ever been ordered to pay. Ecuador argued that the amount of the award represented almost 9% of Ecuador’s 2012 annual budget, 59% of its annual education budget, and 135% of the country’s annual healthcare budget.

In 2007, left-wing President Rafael Correa held a referendum on convening a Constituent Assembly to rewrite Ecuador’s constitution. Eighty-two percent of voters approved. The new constitution—one of the most progressive in the world at the time—passed into law in September 2008 with 64 percent of the vote.

In 2010, Ecuador left the International Centre for Settlement of Investment Disputes (ICSID), a Washington-based arbitration institution. Later, the 2012 ruling in favour of Occidental spurred Correa to begin terminating all of Ecuador’s bilateral investment treaties.

Ecuador’s opposition to international arbitration is bigger than the policies of its former leader, however. The majority of the population approved the 2008 constitution, including Article 422, which prohibits “international treaties in which the State cedes sovereign jurisdiction to international arbitration bodies.”

The Ecuadorian left, and most of the population, recognize international arbitration as a process tipped in favour of corporations, with rulings frequently depriving states of massive sums of public money.

Following the emergence of Correa’s successor, Lenín Moreno, who assumed power in 2017, Ecuador has turned sharply toward the right. The people have paid the price in the form of plummeting social and economic indicators and a startling escalation of the homicide rate: from 5.8 per 100,000 people to 46—an eightfold increase and one of the highest murder rates in Latin America.

Moreno’s successors—first banker Guillermo Lasso, now banana fortune heir Daniel Noboa—have continued his debilitating economic policies. What’s more, both administrations have attempted to reverse Correa’s ban on international arbitration, much to the delight of foreign investors.

In June 2021, the Lasso government rejoined the ICSID. The move was welcomed by David Malpass, President of the World Bank Group and Chair of the ICSID Administrative Council. He praised Ecuador for “cultivating a competitive business environment,” adding, “I congratulate the Government of Ecuador on taking this important step and its renewed focus on private sector investment.”

However, Article 422 remained an obstacle to those political forces in Ecuador that are keen on promoting the interests of foreign companies. As Investment Treaty News indicated when Lasso rejoined the ICSID: “…observers note that the Court must still render a judgement on Article 422 before the country can sign new IIAs [International Investment Agreements] and fully reintegrate into the investment protection regime.”

As Luciana Ghiotto explains, the refutation of Question D means that “Foreign investors will have to file lawsuits in Ecuadorian national courts, not international arbitration tribunals, just like any Ecuadorian citizen, any small or large national company, and any community affected by extractivism.”

The other nine questions, all security-related, passed with majority ‘Yes’ votes. These results illustrate that Ecuadorians want the state to reign in criminal groups. When it comes to deregulating labour and putting the country at the mercy of foreign investors, however, the Ecuadorian public disapproves.

There is one group that certainly will not be pleased with the rejection of Question D: the Canadian mining industry.

While courting international investment, President Noboa took some time to appeal to Canada’s biggest mining companies. On March 4, he spoke at the 2024 convention of the Prospectors and Developers Association of Canada (PDAC), an annual event held in Toronto that promotes Canadian mining interests globally. March 4 was “Ecuador Day” at PDAC, and Noboa used the opportunity to promote his country as a “mining destination” to Canadian investors.

While in Canada, Noboa also paid a visit to Prime Minister Justin Trudeau, where the two leaders welcomed “the imminent launch of negotiations toward a Canada-Ecuador free trade agreement.”

During these negotiations, Canadian officials have pushed the Ecuadorian government to once again embrace international arbitration.

The Canadian mining sector would have welcomed a return to ISDS mechanisms. Canadian mining investments in Ecuador are valued at $1.8 billion, with Canada’s trade commissioner noting that Canadian companies are “leading investors” in Ecuador’s mineral sector.

Shortly after Noboa’s visits to PDAC and Ottawa, the Ecuadorian government released a new prior consultation manual for mining investments. As explains, the manual “highlights that the results of the prior, free and informed consultation process are not binding, which means that the [Ecuadorian] government could choose to greenlight projects even without the consent of the affected communities.”

The Ecuadorian government being able to greenlight mining projects without the consent of locals would be a boon to Canadian mining companies, whose activities often face stiff popular resistance.

Had Question D been approved, Ecuador would have only looked more alluring to Canadian mining companies, as it would have removed the need for local consent and allowed companies to sue the Ecuadorian state at investor-friendly international tribunals.

But Ecuadorians voted down Question D, putting a roadblock in the way of the Ecuadorian right’s efforts to completely dismantle the legacy of correísmo.

Ecuador remains in a state of crisis. The hollowing-out of Correa’s socialist-oriented economic policies has caused poverty and criminal violence to spike. The public reviled Moreno and Lasso during their presidencies, while the Noboa government faces the difficult task of maintaining its legitimacy amid armed conflict and a grim economic situation.

In an effort to bolster his “tough on crime” image for the domestic audience, Noboa ordered the invasion of the Mexican embassy on April 5 to arrest former Vice President Jorge Glas (Mexico had granted Glas asylum due to the political nature of his persecution).

The embassy raid ignited a conflagration in Latin America. Mexico severed diplomatic relations with Ecuador. Nicaragua and Venezuela condemned Ecuador’s actions and, in solidarity with Mexico, broke ties with Noboa’s government. Honduras recalled its charge d’affaires. Even Argentina, governed by the far-right Javier Milei, condemned the embassy raid.

Security is obviously the number one issue in Ecuadorians’ minds, but if Noboa wants to maintain his legitimacy, he needs to make Ecuador safer—as Correa did—instead of persecuting political opponents.

Ecuadorians may want Noboa’s government to ensure their safety, but if the results of Questions D and E are any indication, they do not trust his neoliberal agenda. That’s bad news for Canadian mining companies.

Owen Schalk is a writer from rural Manitoba. He is the author of Canada in Afghanistan: A story of military, diplomatic, political and media failure, 2003-2023 and the co-author of Canada’s Long Fight Against Democracy with Yves Engler.


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