Currently, Ecuadorian regulations have somewhat limited the possibility of resorting to investment arbitration, which has created an unfavorable climate for foreign investment. Pursuant to Article 422[1] of the Constitution of the Republic of Ecuador, in 2009, the Convention on the Settlement of Investment Disputes (ICSID) was denounced, and in 2017, several Bilateral Investment Treaties (“BITs”) were denounced as well because they “contravened” the article.
The exclusion of Ecuador from these BITs has not generated benefits for the country; rather, it has created insecurity. In the absence of an international investment arbitration mechanism following the denunciation of the BITs, most investors must now resort to domestic courts to resolve potential conflicts with the State regarding their investments. This creates an imbalance for the investor, as the State acts as both judge and party, which can lead to bias. For this reason, international investment arbitration becomes necessary.
For this reason, the President of Ecuador, Daniel Noboa, proposes to reform Article 422 of the Ecuadorian Constitution through a referendum to be held on April 21, 2024, which proposes the following:
“Do you agree that the Ecuadorian State recognize international arbitration as a method to resolve disputes in investment, contractual, or commercial matters?”
In the event of a “Yes” vote in the referendum, a series of advantages for international investment arbitration in Ecuador would unfold. This would open the door for the Ecuadorian State to once again subscribe to BITs that include clauses for international investment arbitration. Ecuador’s reintegration into these agreements would be perceived as an incentive for foreign investors interested in the country, as it would strengthen confidence in investing in Ecuador by ensuring a secure legal framework and an effective and impartial avenue for resolving any disputes between investors and the State.
As a result of all the aforementioned, there would be a greater flow of both direct and indirect foreign investment into Ecuador, leading to an economic growth boost and the country’s development, making it an attractive destination for foreign investment and strengthening its global relations.
Certainly, with the implementation of this constitutional reform, Ecuador would send a clear message to the international market that it is committed to protecting the rights of foreign investors and to balanced resolution of disputes that may arise between the State and them.
[1] Constitution of the Republic of Ecuador Art. 422: “No international treaties or instruments may be entered into in which the Ecuadorian State cedes sovereign jurisdiction to international arbitration instances, contractual or commercial disputes between the State and private natural or legal persons. […]”
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This publication contains information of general interest and does not constitute legal opinion on specific issues. Any analysis will require legal advice from the Firm.
