Client Alerts

Ecuador adopts a new approach towards foreign investment

Volterra Fietta Client Alert
26 January 2018

Recent declarations made by members of the newly elected government of Ecuador, headed by President Lenin Moreno, reveal a reversal of the country’s  approach towards foreign investment.  The approach taken by its predecessor was reflected in its decision to denounce and withdrawal from the ICSID Convention, as well as all of Ecuador’s bilateral investment treaties (“BITs”).

Since Ecuador’s new government took office in May this year, its stated priority has been to promote the country’s exports and attract foreign currency and inward private investment.  It has identified a portfolio of 29 infrastructure and other economic projects amounting to US$33 billion which require foreign investment in order to develop.  In this context, the Minister of Trade, Pablo Campana undertook an oversees tour this past autumn to China, United States, Norway, United Kingdom, Switzerland and Sweden.  The Government of Ecuador has indicated that the visits yielded positive results for Ecuador, in terms of international commercial treaties.  The government expects to finalise a commercial agreement with the EFTA in 2018 and to resume negotiations with the US to conclude a commercial agreement similar to the one Ecuador signed with the EU.  At the regional level, the country expects to conclude new commercial agreements in Central America with Honduras, Nicaragua and El Salvador.

Most notably, as part of these development efforts, the government has indicated that it has prioritised the replacement of each of the 27 BITs that its predecessor denounced.  It says that the reason for doing so is to ensure a stable legal framework necessary for companies to invest in the country.  This is a notable policy statement from one of the few countries that has denounced investment treaties.  It is a powerful message to the international community indicating that Ecuador’s new government has concluded that the previous government’s policy has not succeeded in promoting foreign investment and the country’s development.  The Ministry of Trade, together with the Ministry of Foreign Affairs, the General Prosecutor Office, the Ministry of Finance and the National Secretary of Planning and Development, is apparently preparing a plan to achieve this which will be submitted for President Moreno’s approval.

The new government’s Minister of Hydrocarbons openly admitted the failure of the previous denunciation policy.  He acknowledged that the country’s departure from the ICSID system of resolving disputes between investors and States by way of international arbitration has deterred potential new investment in Ecuador.  For his part, the new Minister of Foreign Trade also insisted on the importance of submitting disputes to arbitration as a way of providing foreign investors with legal certainty.  The challenge facing the new government to achieve this involves reconciling the constitutional changes made under the previous government that supposedly made investment treaties and their dispute resolution provisions unconstitutional, on the one hand, with the reality recognised by the government about their role in attracting foreign investment, on the other.  It seems that the government might be willing to consider a number of alternative international investment arbitration alternatives, including submitting disputes to Chilean tribunals.

There are still uncertainties and policy decisions that need to be resolved.  However, all of the options being discussed by the government at the present time appear to revolve around one or another form of ad hoc international arbitration.  This represents another setback to the European Commission’s goal of creating a global investment court modelled after its own European Court of Justice.