On 5 October 2013, the President of Ecuador, Rafael Correa, confirmed that a commission is to be established to audit the bilateral investment treaties (BITs) that Ecuador currently has with other countries.

According to the national Ministry of Planning and Development, Ecuador intends to audit 26 BITs which are considered prejudicial to national interests. This figure establishes that the scope of the audit would thereby cover the majority of Ecuador’s current BITs, although further guidance from the government is needed as to which specific BITs will be targeted – it is highly likely that Ecuador’s BIT with the U.S. will be one. The audit committee will comprise of individuals, including academics, specialists and former judges, from various Latin American countries.

Ecuador’s actions follow a recent ministerial summit in Ecuador itself where a bloc of Latin American countries, including Bolivia and Venezuela, agreed to take collective action to oppose an ever-increasing number of lawsuits brought by multinational corporations against the governments of developing countries for alleged violations of trade agreements. Indeed, according to a study released earlier this year by the Institute for Policy Studies, a Washington think-tank, Latin American countries were the focus of around half of all investor-state lawsuits pending in March 2013 before the International Center for Settlement of Investment Disputes (ICSID).

Those wishing to invest in Ecuador, and more widely in Latin America, should, as always, continue to include appropriate contractual investment protection mechanisms as well as actively managing the structure of their investments to obtain access, where possible, to international law protections and investor-state arbitration. Although Ecuador’s actions currently only extend to the establishment of an audit committee, investors would be well-advised to keep a close eye on developments in the region.


Ecuador’s dissatisfaction with international investment treaties primarily stems from recent arbitrations brought against it by U.S. energy companies. By way of example, in 2012, ICSID ordered Ecuador to pay $1.77 billion to Occidental Petroleum Corp., the fourth-largest U.S oil company, as compensation for expropriation of its assets in 2006. In March 2013, as a response, President Correa presented a bill to lawmakers seeking to annul Ecuador’s BIT with the U.S. He went on to state that “these investment treaties favour foreign investors over human beings” and that they represent “real attacks on the sovereignty of countries”. The current status of the President’s bill is unclear however Ecuador’s BIT with the U.S. remains in force at the time of writing. For further information on the steps previously taken by the Ecuadorian government in relation to its BIT with the U.S., please click here.

Indeed, Ecuador’s present proposals would do little to ease the concerns of investors who were already alienated by President Correa’s government’s decision to default on approximately $3.2 billion of global 2012 and 2030 bonds. This decision, taken in 2008, was based on the findings of a special debt audit commission, similar to the one currently being proposed, which uncovered “illegality and illegitimacy” in the country’s foreign debt. In 2009, investors were further perturbed by the country’s decision to pull out of the ICSID Convention – the largest forum for investment disputes. The withdrawal took effect in January 2010.

Implications for Investors

It must be appreciated that, at this stage, Ecuador only intends to audit the 26 BITs rather than terminate them. As stated above, whilst this figure represents the majority of Ecuador’s current BITs, the exact identities of the BITs in question are as yet unknown. There are various practical steps that an investor should consider in light of Ecuador’s proposals. These include:

  • Actively managing the structure of investments to obtain or preserve access, where possible, to international law protections and investor-state arbitration;
  • Continuing to invest through a corporate vehicle from a country providing comprehensive treaty coverage in order to obtain optimal protection – it is worth noting that despite Ecuador’s (and Bolivia and Venezuela’s) recent denunciation of the ICSID Convention, this does not affect the validity of the investment protection afforded by the BITs concluded by these countries to the extent that such BITs provide for non-ICSID arbitration, as these treaties exist independently from the ICSID Convention; and
  • Keeping up-to-date with developments regarding foreign investment policy and protection in Ecuador and the wider Latin American region as they evolve.