ICSID - ECUADOR TO WITHDRAW FROM WORLD BANK'S ARBITRATION

C O N F I D E N T I A L QUITO 000464 SIPDIS USTR FOR BENNETT HARMAN USDOC 4332/MGAISFORD E.O. 12958: DECL 06/17/2019 TAGS: ECON EINV PREL EC SUBJECT: ICSID - ECUADOR TO WITHDRAW FROM WORLD BANK'S ARBITRATION FORUM REFTEL A: 08 Quito 984 B: 07 Quito 2382 Classified by: DCM Andrew Chritton, Reasons 1.4 (b) and (d). ¶1. (U) Summary: On May 30, President Correa stated that Ecuador would withdraw from the World Bank's investment dispute arbitration forum (ICSID) because it violated Ecuador's new constitution, which only permits the use of regional arbitral forums. Current ICSID cases would still be honored. Ecuador's legislative body approved Correa's request to withdraw from ICSID on June 12; we are not aware that the GOE has officially notified ICSID to date. The U.S.-Ecuador BIT provides other arbitration options for U.S. investors. End Summary. ¶2. (U) In his May 30 radio address, President Correa stated that Ecuador was planning to withdraw from the World Bank's investment dispute arbitration forum, the International Centre for the Settlement of Investment Disputes (ICSID). Calling ICSID "an atrocity," he said that withdrawal was necessary for "the liberation of our countries because this [ICSID] signifies colonialism; slavery with respect to transnationals, with respect to Washington, with respect to the World Bank, and we cannot tolerate this." In addition, Correa stated that he would promote an initiative among the Union of South American Nations (UNASUR) to abandon ICSID. He stated, however, that existing arbitration cases under ICSID would be honored. ¶3. (SBU) On June 5, Correa submitted a request to the Ecuadorian legislative body to approve withdrawal from ICSID, based on an article in the new constitution that requires approval by the National Assembly before ratifying or denouncing international treaties. Correa's argument was that the ICSID convention violated Article 422 of the new constitution, which forbid Ecuador from entering into treaties that granted jurisdiction to international arbitration bodies, except for regional arbitration bodies (reftel A). (Note: MFA officials had told us that this provision would not be applied retroactively and that our Bilateral Investment Treaty (BIT) remained in force; according to these officials, the constitutional provision would apply to new treaties.) On June 12, the legislative body, which is overwhelmingly controlled by Correa's movement, approved Correa's request to withdraw from ICSID. The head of the Assembly commented that Ecuador needed to "reclaim its sovereignty." ¶4. (U) For the move to become effective, the GOE still needs to officially notify ICSID that it is withdrawing, and withdrawal would be effective six months later. Parties would still have the ability to bring cases against Ecuador during this time. ¶5. (SBU) Correa's government has questioned the impartiality of ICSID on several occasions, claiming the forum rules in favor of multinational companies over nation states, in spite of evidence that in general ICSID has ruled in favor of states more often than investors. In late 2007, Ecuador's Foreign Minister notified ICSID that it would no longer consent to ICSID jurisdiction for future natural resources cases (reftel B). ICSID has been the arbitral forum of choice for companies seeking redress in investment disputes with the GOE in the all-important petroleum sector. The Ecuadorian press reports that six of Ecuador's 10 current arbitration cases are being handled through ICSID, with total claims of $3.9 billion. Recently, oil companies have negotiated new contracts with the GOE in which they agreed to non-ICSID arbitration forums such as using internationally agreed rules with the hearing taking place in Chile, or the International Chamber of Commerce in Paris. However, most foreign oil companies operating in Ecuador have outstanding arbitration cases filed with ICSID challenging the windfall oil income tax of 2006, which they claim constituted a change to the economic conditions of their contracts. ¶6. (C) Ecuador is a party to more than a dozen BITs, many of which provide for ICSID arbitration. The U.S. BIT provides for other arbitration options, including ICSID Additional Facility rules, the U.N. Commission on International Trade Law (UNCITRAL),or other forums as agreed to by the parties. ICSID's Additional Facility Rules authorize its Secretariat to administer arbitration proceedings in cases when one of the parties is not a member of ICSID. Some countries, however, only provide for ICSID arbitration in their BITs with Ecuador, such as France, Chile, and Peru. The French Commercial Attache is very concerned about this, and is afraid the GOE will subsequently pronounce the French BIT invalid and request that France negotiate a new BIT, based on a new Ecuadorian model. ¶7. (SBU) When asked about the decision immediately following Correa's announcement, contacts in the Solicitor General's office (which is responsible for defending the GOE in international arbitration cases) indicated they knew nothing of the decision. The Foreign Ministry has been hesitant to discuss the issue, and it appears government officials in general have been waiting for presidential guidance before making public statements. Oil companies to date do not appear to be significantly troubled by the statement, probably because their new contracts already provide for non-ICSID arbitration and most already have pending cases in ICSID over past disputes. However, other investors that might have been considering investing in Ecuador will likely have second thoughts given this development. ¶8. (C) Comment: Correa's move to withdraw from ICSID appears to be ideological, and aimed largely at that one institution. He has consistently criticized ICSID, probably in large part because it is affiliated with the World Bank, but has been silent on other international arbitration fora, such as UNCITRAL, and agreed to include international arbitration provisions in new contracts signed by the government, albeit with certain restrictions. Existing investors with disputes in Ecuador have already availed themselves of the ICSID forum, so the withdrawal does not obviate any liabilities from those disputes. End Comment. HODGES