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Ecuador’s Referendum Reaffirms Status Quo on International Arbitration
Ecuador’s Referendum Reaffirms Status Quo on International Arbitration
Background and Context
On April 21, 2024, Ecuador held a referendum addressing various national issues, including Question D, which focused on international arbitration. Specifically, it asked citizens: “Do you agree that the Ecuadorian State recognizes international arbitration as a method to resolve disputes related to investment, contractual, or commercial matters?” This question aimed to reform Article 422 of the Ecuadorian Constitution, which prohibits the state from yielding sovereign jurisdiction to international arbitration in disputes between Ecuador and private parties. The proposal was rejected by 65% of voters, leaving the legal landscape for international arbitration in Ecuador unchanged.
Constitutional Court Decisions and Their Impact
The backdrop to this referendum includes two pivotal decisions by the Constitutional Court of Ecuador: Decision No. 2-23-TI/23 and Decision No. 8-23-TI/23. The former declared unconstitutional a dispute resolution clause in the Trade Association Agreement between Ecuador and Costa Rica that referred investor-state disputes to ICSID-administered arbitration. Conversely, the latter upheld the constitutionality of the Free Trade Agreement with China, which lacked an ICSID arbitration clause. These contradictory rulings highlight the ongoing debate on international arbitration within Ecuador’s legal system.
The Proposal and Its Rejection
President Daniel Noboa introduced the referendum question to settle this debate by amending Article 422. The proposed reform would have allowed Ecuador to enter into treaties permitting international arbitration for investment, contractual, and commercial disputes. However, the rejection of this proposal means that Article 422 remains unchanged. This result has been misinterpreted by some as a wholesale rejection of international arbitration, but it merely preserves the existing constitutional constraints without altering the broader legal framework that supports arbitration.
Implications for International Arbitration
Despite the referendum’s outcome, the status quo of international arbitration in Ecuador remains intact. The rejection does not prohibit international arbitration but rather maintains the current constitutional limitations. Article 190 of the Ecuadorian Constitution continues to recognize arbitration as a dispute resolution mechanism, including for disputes involving public institutions. Additionally, Ecuador's Arbitration and Mediation Law and the Organic Code of Production, Commerce, and Investments (COPCI) both support arbitration in contractual disputes.
Future and Existing Contracts
The rejection of the referendum has no adverse effect on existing or future contracts involving arbitration clauses. Ecuadorian law still mandates that investment contracts include arbitration clauses, particularly for agreements exceeding ten million US dollars. Therefore, the legal infrastructure supporting international arbitration remains robust, ensuring that private parties and the state can continue to resolve disputes through arbitration.
Conclusion
The rejection of the proposed amendment to Article 422 highlights a political and public reluctance towards altering the constitutional stance on international arbitration. However, this outcome does not diminish the existing legal framework that endorses arbitration as a viable dispute resolution method. The debate around the constitutional provisions for international arbitration, especially regarding ICSID-administered arbitration, will likely persist. Nonetheless, Ecuador remains a jurisdiction where international arbitration is legally supported and widely utilized in practice.
- The proposal was rejected by 65% of voters, leaving the legal landscape for international arbitration in Ecuador unchanged.
- The rejection does not prohibit international arbitration but rather maintains the current constitutional limitations.
- The rejection of the referendum has no adverse effect on existing or future contracts involving arbitration clauses.
