Recent developments involving Bolivia, Ecuador and Venezuela may affect the protections available to foreign investors in these countries.
Bolivia formally denounced the Convention on the Settlement of Disputes between States and Nationals of Other States (the "ICSID Convention"), thus withdrawing from the World Bank's dispute resolution facility for investment disputes between foreign investors and host states. This withdrawal comes at a time when Bolivia is in the process of nationalizing key sectors of its economy. Bolivia has further announced that it is undertaking a review of its BITs, reportedly targeting the following concerns: (i) limiting the definition of investment to investments that "truly generate value for the country", (ii) inclusion of domestic input requirements and rules for transfers of technology; and (iii) dispute resolution.
This is the first time that a member State has withdrawn from the ICSID system. In accordance with Article 71 of the ICSID Convention, Bolivia's withdrawal from ICSID will take effect six months after the receipt of the notice of denunciation, that is, on November 3, 2007. Pursuant to Article 72 of the ICSID Convention, denunciation of the Convention by a Contracting State does not affect that state's rights or obligations under the Convention "arising out of consent to the jurisdiction of the Centre" given by such state before receipt of the notice of denunciation. The question is whether the provisions contemplating ICSID arbitration in Bolivia's bilateral investment treaties ("BITs") constitute pre-denunciation "consent to the jurisdiction of the Centre," (and allow investors to bring claims while the BITs remain in effect), or whether such consent exists only when both parties (i.e., the state and the investor) have consented to ICSID arbitration before the notice of denunciation was received. Commentators disagree as to implications of Bolivia's denouncement for investors, and whether investors are now or will after six months be able to avail themselves of Bolivia's consent to ICSID jurisdiction under Bolivia's bilateral investment treaties (18 of which are currently in effect (see chart below)).
Ecuador, in contrast to Bolivia, has not denounced the ICSID Convention, but threatened in early May that it would not renew its BIT with the United States. Ecuador later announced that it instead will reassess each of its 23 existing bilateral investment treaties. Ecuador has assigned this task to a special commission charged with proposing changes to the BITs for future renegotiations. Ecuador has informed certain countries (including the United States and Switzerland) that it intends to renegotiate their BITs. The government is also preparing a model for this review, which reportedly will focus on three main issues: fair and equitable relationships, respect of sovereignty, and a predictable framework to ensure legal certainty for investors. The Ecuadorian Minister of Foreign Affairs has added that Ecuador will welcome socially and environmentally responsible foreign direct investment that promotes development and employment. The existing US-Ecuador BIT allows recourse to ICSID arbitration, ad-hoc arbitration under UNCITRAL Rules, or arbitration before any other institution or in accordance with any other rules mutually agreed by the parties.
Venezuelan President Hugo Chavez announced earlier this year that his country would withdraw from the World Bank and the International Monetary Fund (IMF). President Chavez also proposed the creation of a South American equivalent of the World Bank, "Banco del Sur." These announcements coincide with Venezuela's negotiations with major multinationals for control of the oil industry in the Orinoco Belt. To date, however, Venezuela has not formalized its withdrawal from the World Bank or the IMF, or denounced the ICSID Convention or any BITs. Meanwhile, Venezuela continues to participate in ongoing ICSID arbitrations. President Chavez has been recently quoted as stating that Venezuela's decision is final but not immediate, and that a technical committee has been put in place to analyze the consequences of such withdrawal.