Ecuador’s Problematic Return to the Investment Dispute Arbitration System

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On April 21, 2024, the Ecuadorian government held a referendum, asking citizens to vote to re-enter the investor-state dispute settlement (ISDS) international arbitration system, which former president Rafael Correa withdrew Ecuador from in 2009 by exiting the International Center for Settlement of Investment Disputes (ICSID) Convention. 

In clear opposition to rejoining, about 65% of referendum voters voted to remain outside the ISDS system. Months later, President Daniel Noboa nevertheless ratified a controversial agreement with the Permanent Court of Arbitration— only one of the many pro-ISDS actions Correa’s successors have taken in recent years, despite clear public opposition. Most explicitly, under former president Guillermo Lasso, Ecuador rejoined the ICSID Convention in 2021, with the stated goal of attracting more foreign investment. Amid a global movement away from the outdated investment protection system, Ecuador remains the only country to leave and rejoin the ICSID Convention, illustrating the difficulties of exiting a longstanding system in a place historically reliant on foreign investments. Consequently, by attempting to revive the ISDS arbitration system, Ecuador’s recent free-market presidents—Moreno, Lasso, and Noboa—have prioritized private sector interests over the voice of the people, challenging both constitutional laws and democratic principles.

ISDS clauses aim to protect foreign investors by offering a legal mechanism to seek compensation if changes in local laws threaten profits, de-risking investment amid political uncertainty. Originating in response to former colonies gaining independence, ISDS clauses in treaties offered protection of companies owned by former colonial powers. The neoliberal free-market reforms that swept across Latin America and much of the developing world in the late 1970s-1990s led to the rise of ISDS clauses in Bilateral Investment Treaties  (BITs) and International Investment Agreements (IIAs). A predominant belief that investment protection provisions in treaties would reduce foreign investors’ risks and thus increase foreign direct investment (FDI) underpinned many investment treaties in that era. Many academics have challenged the validity of this long-held idea.

Why Ecuadorians voted against the return of ISDS is no mystery: the dispute-resolving tool has frequently awarded large sums to international private investors from the pockets of governments. This comes at the expense of other, and perhaps more beneficial, uses of public funds. Ecuador has felt these consequences. 

Ecuador has lost several costly ISDS tribunals brought by companies from extractivist industries. A 2012 tribunal required Ecuador to pay the U.S. oil company Occidental Petroleum $1.5 billion. According to Ecuador’s defense team, that sum represents 9% of Ecuador’s 2012 annual budget, 59% of its annual education budget, and 135% of its annual healthcare budget. In 2012, Occidental had a market capitalization of approximately $61 billion. To date, there have been 1362 publicly known ISDS cases, with most being brought by companies in extractivist industries, typically in response to progressive local regulations.

Despite its vast use and the supposed benefits for economic development, ISDS has recently come under harsh scrutiny, with a rise in countries terminating ISDS-inclusionary BITs and IIAs. Since the early 2000s, a growing number of studies have revealed issues with ISDS, including “legitimacy concerns,” reports of unfairness within arbitration courts, human rights and labor rights concerns, and the impact on environmental policy. A recent rise of third parties helping fund arbitration cases to profit from settlement awards has driven further concern. In light of these trends, the global community has recognized the necessity to move away from or reform ISDS.

The Latin American region is one of the most heavily targeted areas for lawsuits using investment protection clauses and has been a leader in initiating ISDS reforms. Political scientist KL Remmer (2019) writes, “not surprisingly, the political reaction against ISDS and investment treaty guarantees has also been unusually vehement in the region.” The number of signed BITs with ISDS in the area dropped drastically in the late 2000s, after many states lost enormous sums awarded to private investors. 

Ecuador was a leader in the movement away from ISDS. In 2008, the state’s highest court, under the Correa administration, ordered the country to terminate its BITs and IIAs with ISDS. The court also inserted an explicit clause, Article 422, in the Ecuadorian Constitution to prevent future governments from entering new investment treaties that risk “yielding sovereignty” to international arbitration. Correa subsequently withdrew Ecuador from the ICSID Convention in 2009.

After these attempts to eliminate ISDS, the elections of Lenín Moreno in 2017, Guillermo Lasso in 2021, and Daniel Noboa in 2023 resulted in a “180-degree turn.” Moreno requested the Constitutional Court to reinterpret Article 422 in 2018. The Lasso administration began re-negotiating new ISDS-inclusive BITs and IIAs before the court announced its final decision to uphold Article 422, declaring that no new treaties can enable certain international arbitration. Under Lasso, Ecuador became the only country globally to rejoin the ICSID Convention in 2021. In addition to being party to the Convention, the nation rejoined the Pacific Alliance in 2019, which allows for ISDS arbitration, and in March 2025, President Noboa ratified an agreement with the Permanent Court of Arbitration and signed an ISDS-inclusive free trade agreement (FTA) with Canada. Noboa also placed a vocally pro-ISDS judge on Ecuador’s Constitutional Court. 

Influence from the private sector certainly played a role in this “180-degree” shift. Rhetoric to renew private sector investment and increase FDI was potent in Moreno, Lasso, and Noboa’s administrations. Yet, while the interest in increasing FDI has been frequently publicly stated, the corporate lobbying behind Moreno and Lasso’s decisions has also been well-documented by journalists. Guillaume Long (2021) writes, “The corporate interests promoting a return to a pro-ISDS agenda are formidable, and the lobbying to bypass parliamentary authorization is intense.” Firms keen on participating in fire-sale privatizations, for example, were anxious to anchor new investment treaties with ISDS clauses. According to Long (2021), Moreno was under “intense lobbying from transnational corporations” to ask the court to reinterpret Article 422. Journalists also noticed Lasso signed an executive decree mandating the gradual privatization of the state-owned oil industry immediately following the court’s decision to rejoin the ICSID Convention. 

Personal ties of Ecuador’s recent presidents to business industries present another avenue of private sector influence, not to mention numerous conflicts of interest. Lasso has personal ties to business industries and executives, and as a businessman himself, holds most of his personal wealth in his Ecuadorian corporation, Banco Guayaquil. Lasso and other Ecuadorian businessmen have personal interests in Ecuador, indicating a more pro-investment national stance. Meanwhile, Noboa has close family ties to the Canadian mining industry; in 2019, the president’s aunt’s company acquired 10% of a Canadian mining corporation planning projects in Ecuador. Canadian investments in the mining industry are a main beneficiary of the recent Ecuador-Canada FTA.

Constitutional and democratic questions emerge from these most recent actions.

Ecuador is legally meant to be outside the ISDS mechanism, with Article 422 still in place, yet the country has actively been joining new treaties and international bodies that enable ISDS arbitration. Ecuador’s constitutional court continues to hold that BITs with ISDS are unconstitutional through Article 422—though it remains a topic of legal debate—sending mixed signals to the international community. The recent Ecuador-Canada FTA has brought to the fore a new wave of constitutional arguments, environmental appeals, and claims that Noboa’s action violates democratic principles.

Vivian Herrera from Mining Watch Canada commented about the FTA, “What is reflected in the document that they published is very clear: that this agreement is about protecting investment and not protecting people.”

Annabel Williams is a senior at Brown University studying International and Public Affairs. She is a Blog Writer and an Illustrator for the Brown Undergraduate Law Review, and can be reached at annabel_williams@brown.edu

Daniel Shin is a junior at Brown University studying Economics and International and Public Affairs. He is a Blog Editor for the Brown Undergraduate Law Review, and can be reached at sangjun_shin@brown.edu