Ecuador Says No to ISDS, Exits BITs*

After years of sustained activism in Latin America and across the globe, the President of Ecuador recently terminated its remaining 16 treaties that empower multinational corporations to challenge its laws before panels of three corporate lawyers and demand unlimited sums of taxpayer money.

By terminating treaties that include the corporate-rigged investor-state dispute settlement (ISDS) system, Ecuador is the latest country to prioritize its people over corporate rights.

Ecuador’s decision to terminate its ISDS pacts was spurred by firsthand experience with some egregious cases, particularly with Big Oil. For example, Chevron is looking to avoid paying for its massive pollution in the Ecuadorian Amazon. And, Occidental Petroleum received a $1.4 billion award against Ecuador despite having obviously violated its contract with the government.

In response to citizens’ uproar against ISDS throughout Latin America, in 2013, the Ecuadorian government established an audit commission of government officials, academics, lawyers and civil society groups to analyze the costs and benefits of the country’s existing treaties and make recommendations.

On May 8, the government made public the Audit Commission’s 688-page report, which recommended that the government should terminate its remaining treaties and develop an alternative investment treaty model that removes ISDS and rebalances the rights of citizens over corporations.

The Audit Commission reported that the treaties had failed to deliver on promised foreign investment and had, in fact, undermined the development objectives laid out in Ecuador’s constitution. The report found that Ecuador had been forced to pay nearly $1.5 billion to multinational corporations (equivalent to 62 percent of its annual health spending), and that, under currently pending cases, the government runs the risk of having to pay out $13.4 billion (more than half the government’s entire annual budget for 2017).

Ecuador’s President Raphael Correa heeded the advice in the Audit Commission’s report and on May 16, 2017, issued executive decrees that terminated the existing treaties, including its treaty with the United States.

Ecuador joins countries — such as South Africa, Indonesia, Bolivia and India — that have terminated their investment treaties. Meanwhile, Mercosur and the South African Development Community have recently explicitly excluded ISDS from their respective investment protocols.

And Ecuador’s move away from ISDS-enforced treaties mirrors the growing movements in Europe and the United States to stop the expansion of corporate power through ISDS. Bipartisan opposition to ISDS in the Trans-Pacific Partnership (TPP) was a significant reason that the deal could never achieve majority support in the U.S. Congress. The wave of opposition to ISDS in Europe also helped to stall the U.S.-EU negotiations for a Transatlantic Trade and Investment Partnership (TTIP).

Worldwide, the tide is turning against the notion that multinational corporations and investors should be granted extraordinary rights and the ability to enforce them against governments in a corporate-rigged, extrajudicial system. Ecuador’s announcement shows that the diverse movement of civil society, legal scholars and government officials concerned about ISDS are making progress in rolling back the regime.

In the United States, the upcoming renegotiation of the North American Free Trade Agreement (NAFTA) is an obvious opportunity to demand that ISDS be eliminated from any NAFTA replacement.

As pressure grows worldwide for governments to withdraw from the ISDS system, the Trump administration has 60 days before it must reveal its position. (Under Fast Track, the administration must publicly post a detailed description of its negotiating plans 60 days after the initial notice.)

Given that ISDS was a key contributor to the U.S. Congress’ opposition to the TPP, it is not surprising that the administration’s NAFTA renegotiation notice was greeted by demands from Congress and civil society that ISDS elimination must be a top priority.  

*Updated 5/22/17 .