Global Insight Perspective

Significance

President Rafael Correa confirmed his intention to end its BIT with the United States shortly before receiving a visit from U.S. Deputy Secretary of State John Negroponte.

Implications

Apart from the U.S. accord, deals with Canada and several Latin American countries including Argentina and Venezuela could be adversely affected. Concerns remain that President Correa could follow his Bolivian opposite, Evo Morales, and withdraw from the World Bank’s (WB) International Centre for Settlement of Investment Disputes (ICSID).

Outlook

Amending or abandoning BITs adds to Ecuador’s already-high investment risks, leaving foreign operators vulnerable to the Andean country’s partisan judicial system.

Eroding Investor Protection BIT by BIT

Ecuadorian Foreign Minister María Fernanda Espinosa has asserted that her country’s leftist government will begin reassessing “all bilateral treaties that Ecuador has signed”, in comments recorded in an interview on local television Ecuavisa. Bolivia’s Morales government has already unveiled plans to revise 22 bilateral deals, previously designed to strengthen investor protection, which will require an amendment of its Investment Law. Bolivian BIT partners facing reduced investor rights include several European countries such as Germany, France, Spain, and the United Kingdom alongside the United States. The socialist Correa administration already raised alarm bells last week through its plans to withdraw Ecaudor from its BIT with the United States. The controversial head of state softened his position by refusing to rule out an amended version of the accord, but relations were tense as U.S. delegate Negroponte visited the Andean country . Following bilateral talks, President Correa once again dismissed any possibility of reviving talks towards a free-trade agreement (FTA) that had been promoted by his predecessor, Alfredo Palacio.

The Correa administration is reportedly taking legal advice to determine its means of exiting bilateral deals that the Ecuadorian government claims act against national interest. The U.S.-Ecuadorian BIT has been in place for a decade. Other parallel agreements facing fresh uncertainty include those held with Canada, the Dominican Republic, El Salvador, Paraguay, Chile, Venezuela, and Bolivia. The latter three countries are in a stronger position given ongoing efforts to boost bilateral ties. Ecuador’s membership of the leftist Bolivarian Alternative for the Americas (ALBA) bloc reduces risks for investors from member countries Venezuela, Cuba, Bolivia, and Nicaragua. However, investor risks are enhanced by the sub-regional policies of the ALBA. The body threatened to withdraw from the WB’s arbitration mechanism ICSID; a threat that has already been fulfilled by Bolivia.

Outlook and Implications

Juridical security is poor in the Andean region, making the signing of BITs particularly pertinent to foreign investors eying opportunities in countries such as Bolivia and Ecuador. The treaties allowed foreign parties to bypass domestic courts and instead take disputes to international tribunal. The latest initiatives of Bolivia and Ecuador’s leftist governments are beginning to unravel the pro-foreign investment passed by pro-business governments in the 1990s. Ecuador has refused to recognise the US$1-billion suit filed by U.S.-based Occidental Petroleum with the ICSID, of which the Andean nation is supposedly a member. Both Bolivia and Ecuador are ranked as high-risk investment destinations by Global Insight, with overall risks pegged at 3.50 and 3.64, respectively.