BY: BENIN LEE; JUNIOR STAFFER

In 2022, the International Energy Agency released a statement claiming that the world may in fact be in the middle of its first true “global energy crisis” based on the dwindling supply of major oil producers. The crisis, along with the push toward the expansion of clean sources of energy, shows signs that the arbitration of energy disputes, an already large area in international law, will continue to grow.

This increase in arbitration litigation for energy-based claims could mean big things for Latin America because of the unique combination of both oil and clean energy resources in the region. Oil and gas have historically been the primary sources of energy in the region due to its expansive oil reserves. Ecuador, although one of the smaller Latin American nations, is one of the larger oil producers in the region. Ecuador has also sought billions of dollars in investment in the clean energy sector. This combination makes Ecuador a prime location to see an increase in arbitration. 

The recent agreement between the Ecuadorian government and the Permanent Court of Arbitration (PCA) has already set the foundation for Ecuador’s future in arbitration litigation. The PCA is an international organization that provides administrative services and support to resolve disputes that arise out of international agreements. These provisions can extend to arbitration and other alternative dispute resolution (ADR) proceedings and even financial assistance for those seeking ADR services around the world.

On October 17, 2022, the Ecuadorian government signed a Host Country Agreement which grants the PCA special privileges and immunities for officials, arbitrators, and participants in PCA-administered cases. Additionally, the agreement helps to guarantee that PCA personnel can perform the necessary functions under similar conditions to those available at the PCA’s headquarters. This framework allows the PCA to request facilities such as office and meeting spaces and other needs, such as secretarial services. In exchange, host countries benefit from the elevation of their international profile as a host country of an arbitral forum. This, in turn, can both attract foreign nations looking for a neutral third-party forum and enhance the domestic awareness of arbitration as a dispute resolution method.  

Perhaps most importantly, this agreement between Ecuador and the PCA sends a clear message to corporations that the nation of Ecuador is willing to protect commercial dispute resolution mechanisms. This has the effect of attracting investment by boosting investor confidence. If an investor knows that they can rely on effective methods of dispute resolution, should a conflict arise, it is more likely that the investor will take the risk to invest.

“Perhaps most importantly, this agreement between Ecuador and the PCA sends a clear message to corporations that the nation of Ecuador is willing to protect commercial dispute resolution mechanisms.”

Benin Lee

            The possible investment that results from the PCA agreement is in line with the current shift toward investment policies in Ecuador. A year before the host agreement was made, then newly elected President Guillermo Lasso pushed for the nation’s re-entry into the World Bank’s International Center for Settlement of Investment Disputes (ICSID). This organization helps to ensure the effective and secure arbitration of disputes. Additionally, ICSID boasts the record of administering nearly 70% of all cases with investor-State disputes and being “the world’s leading and most experienced facility for arbitration and conciliation of investor-State disputes.” Lasso re-joined this agreement for similar reasons as the PCA, including the potential increase in foreign investment based on investors’ increased confidence in effective dispute resolution.

The reentry process was by no means a simple endeavor. The Ecuadorian government had previously left the ICSID in 2009 after concerns about the Ecuadorian State handing over its sovereign jurisdiction to international arbitration. These concerns, among other factors, led the government to adopt Article 422 in the Ecuadorian Constitution, which prevented future governments from entering into new international investment agreements that threaten to “yield sovereignty” to international arbitration. Because of this constitutional provision from 2009, the current administration sought special permission from the constitutional court to ratify the agreement. 

The combination of the ICSID reentry and the PCA host agreement points to Ecuador’s goal of improving its economy via the attraction of foreign energy projects. Although many oil extraction projects tied to this investment plan threaten to harm both the environment and indigenous communities, some view these projects as a way to save the nation’s economy. The pandemic left Ecuador’s already struggling economy with a 32 percent poverty rate, with those in poverty earning less than $3 (US) per day. The newly elected president hopes to attract energy investment that will create jobs and in time lower the poverty level. However, the question remains regarding how increased investment opportunities from arbitration will impact the Ecuadorian people.