by bilaterals.org | 21 April 2024

Between sovereignty and corporate interests: what is at stake in the Ecuadorian referendum?

On 21 April 2024, the government of Daniel Noboa is organising a referendum in Ecuador to amend the national constitution and address fundamental issues such as security and investment. Of the 11 questions in the referendum, question D in particular seeks to reactivate the dangerous Investor-State Dispute Settlement (ISDS) mechanism.

Since former president Rafael Correa terminated investment treaties that included ISDS in 2017, the debate on this issue has returned to Ecuador’s political arena repeatedly. To better understand the implications and explore the reasons behind the social movements’ call to reject question D in the referendum, we interviewed Cecilia Cherrez, a member of Acción Ecológica and the campaign for a NO vote on the international arbitration question in the referendum.

In the referendum on 21 April, there is a question aimed at amending article 422 of the Constitution. What is the question about?

Article 422 of the Ecuadorian Constitution prevents the transfer of sovereign jurisdiction to international arbitration in contractual or commercial disputes between the State and private individuals or legal entities. Consequently, international treaties or instruments that imply such a cession cannot be concluded, as is the case with bilateral investment protection treaties, the central pillar of which is linked to the granting of excessive legal guarantees to transnational corporations, which, when applied, entail the subjection of human, collective and nature rights to the rules of such international arbitration. [1]

This article was inspired by the social struggle in the early 2000s against the oil company Occidental (Oxy), which had filed a multi-million dollar arbitration claim against Ecuador in response to the state’s decision to terminate its contract - Oxy had negotiated the transfer of part of the concession block to another transnational company without the authorisation of the Ecuadorian state.

This article is an essential shield against the legal claims of big business, which seeks to maintain impunity for crimes committed against communities, peoples and nations living in areas where oil and mining projects are imposed. In the face of resistance from social movements, legal action has been taken or threatened in international arbitration tribunals if governments do not ’control’ people’s protests. People defending land, water, peasant agriculture and community autonomy have been repressed and treated as criminals.

Ecuador is currently the fifth most sued country in international arbitration in Latin America and the Caribbean. It has been the subject of 29 cases, 21 of which have already been resolved by arbitration tribunals, with 14 awards in favour of companies and only 7 in favour of the state.

How did Ecuador leave and return to the International Centre for Settlement of Investment Disputes (ICSID)?

The inclusion of article 422 in the Constitution, in force since 2008, has made it incompatible for the country to join international arbitration tribunals, particularly the ICSID, where a large number of transnational corporations have filed claims against Ecuador. According to the Transnational Institute, 11 of the 29 cases against Ecuador have been brought before this tribunal. As a result, the government of the day withdrew from ICSID in 2009.

Twelve years later, as part of an aggressive policy to radicalise neoliberal measures by signing new free trade agreements and bilateral investment treaties, and to position Ecuador as a nation prepared to comply with the highest standards for international investment, the country ratified the ICSID Convention again, which entered into force in September 2021, without the approval of the National Assembly.

What are the risks of amending this article of the Constitution?

The possibility of amending article 422 has long been an aspiration of big business, to be able to act with greater impunity for the crimes they commit against communities, territories and nature.

In 2018, the then Minister of Foreign Trade asked the National Assembly for an interpretation of the article, as negotiations for a free trade agreement with the United States were progressing. The Minister’s request prompted the President of the National Assembly to submit an amicus curiae brief to the Constitutional Court in favour of such an interpretation of the article. At present, these aspirations are being channelled through question D of the referendum promoted by the government to be held on 21 April.

If this question is approved, Ecuador will be required to make exorbitant payments for international arbitration cases that have already been decided. One of them is Chevron (formerly Texaco), which won a case against the Ecuadorian state in an arbitration tribunal in The Hague. Chevron, responsible for the environmental and social devastation of the northern Ecuadorian Amazon, has gone from being a company accused of causing serious environmental damage and obliged to pay full compensation, to a company defending itself against damage to its brand image. In reality, Chevron should receive $2 billion this year, if there are no obstacles. [2] This amount is included in the 2024 budget and is equivalent to the entire budget for the health sector. There is no guarantee that this payment will not affect health, education, environmental control and other commitments.

But it is not just a question of plundering public resources. It is also a question of national sovereignty, of the supremacy of the Constitution, of respect for national judicial processes that have ruled in favour of human rights and nature, of guaranteeing the protection of fundamental rights, of respect for the full reparation of peoples and territories, and of putting an end to corruption between big business and public officials.

What are the challenges facing organisations in the run-up to the referendum on 21 April?

The social movements working to address the risk of a possible reform of article 422 are mobilised in a campaign to alert the Ecuadorian population and promote a NO vote on question D, with limited time and resources. However, we have been able to contribute to the strengthening of a powerful network of organisations that has been able to express itself in numerous alternative and community media at national level. This network also aims to take part in greater coordination with other sectors that are building, from their respective spaces, alternative proposals to development and globalisation subject to the interests of multinationals.