ISDS, Egged on by Canadian Mining Interests, Makes a Stealth Appearance in Noboa’s Security Referendum

InDepthNews (Berlin)

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On February 9, less than 100 days into his transitional one-and-a-half-year term, Ecuadorian president Daniel Noboa announced an 11-question referendum to take place on April 21. Amid a historic security crisis that has made Ecuador one of the deadliest countries in Latin America, Noboa has presented the vote as a plebiscite on security policy, with questions centered on the militarization of law enforcement, harsher criminal sentences, and the extradition of Ecuadorian nationals to the United States. But he’s also taking advantage of the opportunity to propose initiatives unrelated to Ecuador’s security crisis. One in particular would result in Ecuador readopting investment provisions that prioritize corporations’ rights over those of labor, Indigenous communities, and environmental and health regulations.

Hidden among 10 other, mostly security-related questions, “Question D” asks whether the state should recognize international arbitration in treaties to settle investment disputes, something currently prohibited under Article 422 of the Ecuadorian Constitution, which was adopted by popular referendum in 2008. Prior to the 2008 Constitution, Ecuador’s experience with investor-state dispute settlement (ISDS) — a provision in bilateral investment treaties (BITs) and trade agreements that allows investors to sue countries for alleged violations of the agreements — had proven extremely costly. ISDS provisions were also a strong deterrent for the implementation of essential public policies. ISDS proponents touted supposed investment incentives, but the measures failed to lead to increased foreign direct investment, particularly in the non-oil sector, after Ecuador adopted them in the 1990s and early 2000s.

Ecuador’s experience with ISDS is consistent with that of many other countries, especially in the developing world, which have been the main targets of ISDS cases. Investors often exploit ISDS provisions by suing governments acting in the best interest of their people. ISDS mechanisms regularly punish new or strengthened environmental, labor, or tax laws and regulations, which are perceived as threats to current or future investor profits, and hinder the implementation of new regulations. Arbitration proceedings are highly secretive, slanted in investors’ favor, and very costly in terms of legal fees and compensation. For this reason, Global South countries have been moving away from ISDS, with some Global North countries following suit (including the UK, Germany, and the US). Between 2008 and 2017, Ecuador withdrew from ICSID, the World Bank’s ISDS institution, and terminated all its BITs.

Given ISDS’s detrimental effects on human rights, labor, and the environment, the country’s largest labor unions and Indigenous organizations, along with left and center-left parties, have come out strongly against the referendum’s Question D.

In March, Noboa traveled to Ottawa and Toronto, where it was announced that Ecuador and Canada would start negotiating a free trade agreement (FTA) in April. There had been exploratory discussions between the two governments prior to this announcement, and the Canadian government’s notice to Parliament of its intent to negotiate an FTA with Ecuador led to Canadian parliamentary meetings in February.

Although ISDS remains prohibited under Ecuador’s Constitution, and the referendum’s outcome is yet to be seen, the mechanism will almost certainly be an important part of the bilateral talks. Addressing the parliamentary meetings, Canada’s ambassador to Ecuador said, “The government of Ecuador wants ISDS as part of this agreement,” while a Canadian Foreign Ministry official said investment is a “particular area of interest,” and ISDS “is a key interest for Canadian industry stakeholders,” as it “has proven to be an investment attraction vehicle.”

Ecuador formally terminated its Foreign Investment Protection Agreement with Canada in 2017 (ending the agreement a year later). Despite this, the Canadian government claims that “Canadian Direct Investment in Ecuador, at $2.6 billion in 2022, has tripled in the last 5 years making Canada the largest foreign investor in Ecuador.” This calls into question the supposed urgency for ISDS and whether the absence of such mechanisms has actually deterred Canadian investment in Ecuador.

Ironically, senior Canadian officials have spoken out against ISDS in the past. In 2018, during a speech about the renegotiated NAFTA, then foreign minister (now deputy prime minister and finance minister) Chrystia Freeland said: “ISDS elevates the rights of corporations over those of sovereign governments. In removing it, we have strengthened our government’s right to regulate in the public interest, to protect public health and the environment.”

During the parliamentary meetings, Canadian civil society organizations (CSOs), such as the Canadian Centre for Policy Alternatives, MiningWatch Canada, and Amnesty International Canada warned against the potential FTA and ISDS. In Ecuador, CONAIE, the country’s largest and most influential Indigenous organization, issued a joint statement along with other Indigenous groups stating: “this treaty favors transnational corporations, especially mining corporations, and includes international arbitration clauses that could restrict the sovereignty and regulatory autonomy of the Ecuadorian State, putting at risk the human, environmental, and collective rights of Indigenous peoples.” Ecuadorian CSOs also complain that they have not been consulted on the agreement.

In addition to the FTA, Noboa has announced the signing of investment agreements worth $4.8 billion with six Canada-based mining companies. These lay the groundwork for investment commitments, timelines, responsibilities, and scope of mining projects, and “for the execution of a formal Investment Protection Agreement,” as one of the mining companies announced in March. The company also claimed the Ecuadorian government would “facilitate” the acquisition of permits and licenses. To further promote mining, Ecuador’s minister of energy and mines said the government will accelerate the cancellation of unused and unpaid mining concessions and will reopen a database, closed since 2018, that investors use to request mining rights.

The CONAIE and other Indigenous groups have opposed this move and, on March 4, 70 CSOs protested at the Canadian embassy in Quito against promoting mining in Ecuador. Local Indigenous communities have often resisted Canadian mining projects, and there have been documented incidents of state violence against protestors.

Recent events in Palo Quemado are illustrative. There, the Ecuadorian government was in the initial phases of environmental consultation for the La Plata mining concession, which belongs to Canada-based Atico Mining, which just signed an investment agreement with Ecuador. Indigenous groups say police and the military violently cracked down on protests, while the military claims that protestors were engaging in “terrorism.” In response to the violence, a judge ordered a temporary suspension of the consultation and the withdrawal of security forces from the area. Ecuador’s investment agreement with Atico “delineates the Ecuadorian State’s commitment to assist and expedite the progress of the La Plata mining project,” the company stated.

The day that Noboa returned from Canada, Ecuador’s Ministry of Energy and Mines issued new guidelines for prior consultation of Indigenous communities regarding extractive projects. Under the Constitution, Indigenous communities have the right to be consulted before each phase of an extraction project that could impact them. The guidelines have proven controversial among activists, as they were issued by ministerial decree — not through legislation — which goes against two Constitutional Court rulings. They claim that by sidestepping the legislature, the government is infringing on Indigenous people’s constitutional rights to be consulted before laws affecting their rights are enacted, and they have filed a claim of unconstitutionality against the guidelines with the Constitutional Court.

Given that Canada is the most important investor in Ecuador’s mining sector, and that mining surpasses all other Canadian investment in Ecuador, the proposed FTA would do much to boost ISDS for mining corporations. It would allow Canada-based mining companies to sue Ecuador if a concession is withdrawn because it had been granted despite being legally dubious — a serious possibility, considering the Ecuadorian government’s past approach to consultation processes and its repeated disregard for local communities.

If a majority of Ecuadorian voters approve Question D, Ecuador will expose itself unnecessarily to damaging ISDS claims, and with companies in a sector prone to lawsuits. At Canadian parliamentary meetings on the FTA, Stuart Trew of the Canadian Center for Policy Alternatives (CCPA) commented that Canada is “the fourth most litigious country when it comes to companies using ISDS to challenge environmental decisions in other countries, challenges with respect to mining permits.” A 2022 CCPA report found that, since 1998, companies in the mining and natural resources sector initiated 70 percent of Canadian ISDS cases outside North America. “In Latin America in particular, Canadian-based corporations are responsible for more mining-related ISDS claims than investors from any other country,” the report notes.

The referendum question on ISDS could ― and perhaps should ― be seen as part of a bigger plebiscite on the Noboa government’s priorities. Should foreign investors be given carte blanche to carry out environmentally destructive projects that negatively affect workers and local communities? Or should the health and well-being of Ecuadorians, and the protection of Ecuador’s precious biodiversity, be the government’s first concern?

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