Ecuador said “no” to international arbitration: a sovereign decision with international resonance in the fight against ISDS
by Luciana Ghiotto – Transnational Institute (TNI) | 22 April 2024
April 21st has been a historic day. The Ecuadorian people voted massively NO in the referendum question about whether Ecuador should return to arbitration. The Noboa government lost resoundingly on Question D, as nearly 65% of citizens voted against it. Ecuador thus remains outside this investor-state dispute settlement mechanism (ISDS), seven years after having terminated all international treaties that included arbitration.
It is Monday morning, April 22. The votes are still being counted, and the gap continues to widen.
Ecuador was not just any country; this was not just any referendum. Ecuador has a long history of resistance to arbitration, so much so that the issue was expressly prohibited in the 2008 Constitution. Question D of the referendum: “Do you agree that the Ecuadorian State recognizes international arbitration as a method to resolve disputes in terms of investment, contractual or commercial?” which would imply the modification of article 422 of the Constitution. Since 2017, when Ecuador ended all its investment protection treaties containing arbitration, the economic right has systematically attacked this article, arguing that it restricts the country’s ability to receive foreign investment.
This has been a giant victory for the social movements of Ecuador, which in the record time of a month and a half mounted a citizen campaign on a national scale. It turned out to be a great achievement to put the focus of the campaign against the entire referendum on the arbitration question. This question was hidden within a series of questions related to the security agenda, especially the use of the armed forces in internal security, where the Yes won. However, the No victory was overwhelming in two of the linked questions to neoliberal policies: in Question D on arbitration and in Question E on the possibility of allowing labor contracts with hourly work.
But there was a fear that the Yes vote would win. This would have once again allowed foreign investors in Ecuador to bypass national justice and sue the State in international arbitration courts when they understand that public policy has modified their profits in any way.
Ecuador already knew of the privileges that foreign investors have had in the country. Recently from the Transnational Institute we published a report that shows that Ecuador is the 5th in the list of countries with the largest number of investors claims in Latin America, where foreign investors filed 29 arbitration claims. The most notable fact is that half of these claims are linked to activities in the extractive sectors (hydrocarbons and mining). In a country that has been organizing against the extraction of minerals and oil in protected areas of great value for their biodiversity, there is plenty of experience to talk about the privileges of investors. That is why the response from social organizations was so quick, and undoubtedly this is why the result of No is so resounding in Question D.
A victory for the local and global fight against arbitration
Now, we have the victory of No. And what happens now? Article 422 remains as it is, as it was drafted in 2008 by the Constituent Assembly. Ecuador remains out of arbitration. This means that the free trade agreement that the Lasso government had signed with Costa Rica is paralyzed. The Ecuadorian Constitutional Court had already declared it unconstitutional for including ISDS. And the treaty with Canada, which would be negotiated this year, is also frozen. Foreign investors will have to file lawsuits in Ecuadorian national justice, not arbitration, just as any Ecuadorian citizen does, any small or large national company, any community affected by extractivism. Without arbitration there is national justice, as it has always been in the era of modern nation-states. It has been like this until the neoliberal decade, until the nineties.
And we celebrate because the campaign was a success. It managed to bring friends and political adversaries together in the same objective. On the one hand, sectors of the indigenous and peasant movement, with CONAIE at the forefront; the Yasunidos movement, victorious in the popular consultation of August 2023 where the people voted to keep Yasuní without oil exploitation; the UDAPT, Union of People Affected by Texaco-Chevron, which quickly organized a toxic-tour to the province of Sucumbíos to show young influencers who were not even born in the nineties, the impacts of oil pollution in the jungle; Acción Ecológica, part of Ecuador Decide better without FTAs, a coordination with years of experience in explaining the legal system that gives privileges to foreign investors.
Dozens of others from all over the country joined these movements to explain what arbitration is on local and community radio stations, regional television channels, and on social networks. They spoke at each place where they were summoned, showing the numbers of the impacts of arbitration in Ecuador, explaining how the mechanism works, giving the debate with journalists who were not so convinced. New media entered the scene, especially those watched by young people: Instagram, Tik Tok, Twitter, Whatsapp. Every medium was valid, every tweet was forwarded, every message amplified. The campaign was accelerated, but accurate: the central message was to vote No on question D, within a larger campaign for No on the 11 questions of the referendum, on which not everyone agreed.
Working alongside the movements were the teams of the political party Revolución Ciudadana, led by former officials of Rafael Correa’s government. This group of economists and lawyers had promoted the Comprehensive Audit Commission of Investment Treaties and the Arbitration System (CAITISA) in 2013 and today occupy important places within the party, like Andrés Arauz himself, who was a candidate for the presidency. This group knew perfectly well the negative impacts of arbitration, because in their years in government they turned this issue into their hobbyhorse. That fight bore fruit, since the results of CAITISA supported the government’s decision to end all treaties that included the protection of foreign investments, leaving a political bomb in the hands of successor Lenin Moreno. This president, along with those who came after, tried under every possible means to overthrow article 422 of the Constitution, but they could not. This was undoubtedly the merit not only of Correa’s government team, but of the constituents who drafted and incorporated this article in the 2008 Constitution, since they managed to build a padlock, a legal wall that maintained the prohibition of arbitration even in the face of the desperate attempts of the economic right.
We must also mention the international support that was added to the work of local groups. Because the rejection of arbitration is not a national or even regional issue: it is global. ISDS has generated much criticism from academia, professional, government and civil society around the world. A global declaration was quickly articulated that had the support of more than 150 social organizations, including the European Trade Justice Coalition, a coalition that brings together more than 50 organizations and networks throughout Europe, and that has vast experience of resistance against arbitration, including the recent victory when several European countries announced their withdrawal from the Energy Charter Treaty (a mega-treaty with arbitration that benefits investors especially in the fossil energy sector). The Platform Latin America better without FTAs also joined, which coordinates an important part of the organizations that have been fighting against free trade and arbitration since the campaign against the FTAA (ALCA) more than two decades ago.
There is no attempt here to devalue the work of Ecuadorian organizations in the victory of No, but it is important to highlight that every movement that fights against arbitration anywhere in the world receives international solidarity and support. The fight against arbitration and investment treaties is part of a global network of struggles that has been going on for twenty years and is quickly activated when required. Because it is understood that the fight for a fairer globalization is global, the battles take place in international forums, but also on a local, national scale. And in Ecuador, this fight ended yesterday in a victory, having enormous resonance in the fights against arbitration around the world. Therefore, it is worth saying again: thank you, Ecuador, you continue to show us that it is possible to say no to economic power and its legal acolytes.
