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Image: Canadian Press

Why the Ecuador trade deal Canada wants hinges on a misleading referendum question

Ecuador’s April 21 vote on investor-state dispute settlement could quash mining sector hopes in the looming negotiations

March 13, 2024

8-minute read

Canada’s hopes of quietly and quickly negotiating an “inclusive” free trade deal with Ecuador blew up in both government’s faces last week—and that’s a good thing. It has become clear to anyone paying attention that the proposed deal is political cover for helping Canadian mining companies undermine the voices of Ecuadorians struggling to protect their lands from polluting extractive projects.

With luck, the worst part of a potential Canada-Ecuador trade deal—a planned investment protection chapter with a controversial investor-state dispute settlement (ISDS) process like the one Canada removed from NAFTA—will remain off limits by virtue of currently being unconstitutional in Ecuador. However, that outcome rides on the result of a vaguely worded, out-of-place question on whether ISDS should be legalized in an April 21 referendum.

A yes vote would pave the way for reversing years of progress by previous Ecuadorian governments to dismantle the biased and unbalanced international investment arbitration regime. A no vote, on the other hand, would send a clear message to the Ecuadorian and Canadian governments—and the world—that popular sovereignty, the rights of Indigenous peoples, and the rights of nature must be paramount in disputes involving foreign investment.

Noboa buries ISDS question in security referendum

On April 21, amidst an ongoing public order crisis, Ecuadorians will go to the polls to answer 10 questions in a referendum promised by President Daniel Noboa during last year's election campaign. Most of those questions involve security and criminal law reforms related to the current crisis—but one asks whether Ecuador should recognize international arbitration for investment disputes.

In what a former constitutional court member calls a "democratic disaster," Noboa is using the cover of internal conflict to bring ISDS back to Ecuador. The shock doctrine–type move appears to have the full support of Canadian trade officials as they prepare to launch free trade talks with Ecuador, as well as Canada's Quito-based ambassador, Stephen Potter.

According to Ecuador's trade minister, Sonsoles García, speaking to investors at the Prospectors and Developers Association of Canada annual conference in Toronto last week, the referendum question on ISDS is part of the Noboa government's plan to bring more mining investment to the country. Following her bilateral meeting with Mary Ng on February 1, Canada's trade minister "relayed her support" to García for her leadership on "strengthening Ecuador’s commercial environment."

According to Pedro Labayen Herrera of the Centre for Economic and Policy Research (CEPR), the ISDS question "is likely to face pushback from the left." Article 422 of Ecuador's 2008 constitution requires international arbitration to be handled by regional dispute bodies. The Correa government (2007–2017) subsequently withdrew Ecuador’s membership in the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) and terminated the country's investment treaties, including a Foreign Investment Protection Agreement (FIPA) with Canada. That treaty's long sunset clause continues to protect Canadian investors who were established in Ecuador in 2018 until 2033.

The previous chaotic and short-lived government of Guillermo Lasso moved to rejoin ICSID in 2021, but Article 422 of the constitution "has nevertheless prevented Ecuador from signing bilateral investment treaties (BITs) or other treaties with ISDS arbitration clauses," writes Herrera. For example, the Constitutional Court denied Ecuador's national congress the possibility of including an ISDS process, with recourse to ICSID, in the recently passed Ecuador-Costa Rica FTA.

A "yes" vote on the vaguely worded investment arbitration question in Ecuador's April 21 referendum would represent a massive backslide for a country and region that had shown how to roll back ISDS. Bolivia exited the ICSID Convention in 2007, Venezuela in 2012. And on February 29 this year, Honduras wisely sent the World Bank written notice of its denunciation of the dispute settlement convention as it faces an outrageous $11 billion ISDS case related to the cancellation of a private city project (special economic zone) backed by libertarian tech bro Peter Thiel.

A “yes” vote in Ecuador’s referendum would also allow the Canada free trade talks to include the strong investment protection chapter and ISDS process the Canadian mining sector requested. A "no" vote, on the other hand, would preserve the Correa government's wise reforms with immediate positive effect on any potential Canada-Ecuador trade deal.

Global Affairs Canada’s dogged support for ISDS

When writing about investment protection treaties and Canada, it bears repeating how proud Deputy Prime Minister Chrystia Freeland was to remove ISDS from the renegotiated NAFTA, because ISDS “elevates the rights of corporations over those of sovereign governments.” This policy does not seem to have taken hold within Global Affairs Canada (GAC).

"A particular area of interest as we head into negotiations relates to investment," said Doug Forsyth, director-general for market access at GAC, in his February 15 testimony before the House of Commons trade committee (CIIT). "As of 2022, Canada had the largest stock of foreign direct investment in Ecuador of any country at $2.6 billion, led by investments in the mining sector. Enforcement of investment chapter obligations through investor-state dispute settlement, ISDS, is a key interest for Canadian industry stakeholders."

The House trade committee held three sessions last month on Canada's plans for an Ecuador trade deal, as requested by NDP trade critic Richard Cannings. Cannings and Bloc MP Simon-Pierre Savard-Tremblay made good use of the opportunity to grill the government on the contradiction between “inclusive trade” and the terrible ISDS track records in Latin America.

MPs asked Forsyth and GAC investment policy expert Ruben East repeatedly why Canada would want to drag Ecuador back into the mire of ISDS when 1) it contradicts the government's view of ISDS in NAFTA, 2) other countries, including the EU, are withdrawing from treaties to preserve environmental policy space, and 3) Canadian mining companies, the main users of Canadian investment treaties, are a significant source of human, Indigenous, and environmental rights violations. The officials' responses varied between:

  • ISDS is important to our stakeholders.

  • ISDS is a proven attractor of new investment (it isn't).

  • Stakeholders need an effective way to enforce the substantive obligations in the investment chapter.

  • Stakeholders can't enforce investment treaty protections in domestic courts, so they need ISDS.

  • Due to the termination of the Canada-Ecuador FIPA, until we sign an FTA that includes ISDS, stakeholders "would not have that type of protection, and neither would they have the ability to use ISDS."

You can read the full GAC testimony here. A video of my testimony to the committee is here, but you can also read it and the testimonies of MiningWatch Canada and Amnesty International Canada here. Our three organizations, with TIRP researchers Kyla Tienhaara and Ronald Labonté, published a joint op-ed on the Ecuador FTA in the Hill Times on February 26, in which we argue: "it is opportunistic for Canada to fast-track a contentious free trade deal that could exacerbate an already dire human rights situation. It beggars belief that the government is still pushing for investor protections that the UN has warned pose 'catastrophic' consequences for the environment and human rights."

A week after GAC’s testimony, Ambassador Potter gave his own baldly ideological and rather undiplomatic account of why Canada needs this trade deal. Potter blamed the Correa government for virtually all of Ecuador's current ills. He brushed off poverty-beating programs established after 2008—and dismantled by subsequent governments—as "poor-quality investment" and "entitlement programs."

In contrast, the last two governments in Ecuador—which rolled back the social state in return for International Monetary Fund loans—and the current Noboa presidency "have had a common strategy for economic transition" that Canada can get behind, said Potter: "responsible fiscal management, opening up the country to investments, and facilitating increased exports."

Answering a question about Ecuador’s poor regime of free, prior and informed consent, and why he refused to meet with representatives of the Shuar Arutam people (PSHA) opposed to B.C.-based Solaris Resource’s Warintza mine, the ambassador shamelessly cast doubt on the legitimacy of their claim to lands overlapping the project. Last week, two of Ecuador’s largest Indigenous organizations backed the PSHA’s claims in powerful, widely covered media conferences.

Cannings introduced a question to Potter on ISDS by mentioning how fond he was of Ecuador, and how envious of the ambassador’s posting. “I just have real trouble squaring that circle whereby we're in one sense trying to protect Canadian companies that have had—and I don't think you can dispute this—a very checkered past with regard to human rights and the environment and trying to have a modern free trade agreement that seems to be trying to do both things at once,” Cannings said.

Potter started his response by inviting “all members of the committee to visit us here and land at the airport that was built by the Canadian company, Aecon, which is also protected by an investment agreement and where there has been a dispute.” He then fell back on a strategy used by Canadian officials in defending the inclusion of ISDS in the Canada-Ukraine FTA: blame the other side.

“Most importantly, the government of Ecuador wants ISDS as part of this agreement, and I think it has the capacity to negotiate hard for adequate protections, as my colleagues have mentioned before, against changes in legislation in the future,” Potter said. “It feels it is not competitive with other countries in the region as a destination for investment, and it would like [ISDS] in there.”

Mining backlash in Toronto and Quito

Noboa was also in Toronto last week to give a speech to PDAC and meet Prime Minister Trudeau. The new Ecuadorian president highlighted his government’s efforts to reform Ecuador’s constitution to allow mining disputes to be handled by private international arbitration tribunals rather than domestic courts. Noboa announced he’d signed several new multi-billion-dollar contracts with Canadian mining firms.

Back in Quito, Ecuador’s capital, this did not go over well. Protests outside the Canadian embassy condemning Canadian mining operations in the country, as well as Noboa’s efforts to solicit more mining investment, attracted national and international media coverage.

The protestors drew attention to the February 29 complaint filed against Solaris Resources at the British Columbia Securities Commission by the PSHA, for failure to properly inform shareholders that the company lacks a "social licence" to proceed. "This lack of [free, prior and informed consent] puts the viability of the project at risk and opens the door to future litigation, similar to legal injunctions that have paralyzed neighboring mining projects," explains a press statement on the complaint.

The PSHA complaint alleges the company has been misleading shareholders about its consultation with Indigenous communities to secure “social licence” for the project. PSHA is the legal representative body of 47 communities with collective land title and ancestral possession of 232,500 hectares of territory in the Cordillera del Condor region of Ecuador’s Amazon, and site of Solaris’ flagship Warintza copper-gold project. PSHA has repeatedly expressed its opposition to the project. The government has failed to consult them—as required by the Ecuadorian constitution and international Indigenous Rights obligations—and has not obtained their consent for the project.

More than 80 organizations—including Acción Ecológica, Quito Sin Minería, PSHA, Amazon Watch, the Ecumenical Commission on Human Rights and the Regional Foundation for Human Rights Counselling—delivered a letter Ambassador Potter on March 4 outlining their concerns about the call for more mining investment and Canada's role in promoting the sector, and how the FTA will pander to corporate interests, mainly in the extractives sector.

"[W]e the Canadian Embassy permanently exercises undue economic diplomacy in the interest of Canadian mining companies, ignoring the social and legal legitimacy of Indigenous peoples, closing itself off to dialogue with their representatives (as was the case with the request for a meeting by President of the Shuar Arutam People Jaime Palomino), and fomenting division between communities," the letter read. On March 7, the Confederation of Indigenous Nationalities of Ecuador (CONAIE) also denounced Noboa's trip to Canada and his interest in including ISDS in the Canadian FTA.

Ecuadorian civil society is mobilizing against the Canada-Ecuador FTA, as it did to oppose the recently passed China-Ecuador trade agreement. President Noboa may have scored a public relations win among Bay Street mining investors. But with hope and strong campaigning in Ecuador in the lead-up to the April 21 referendum, it will come at a cost to his government’s efforts to roll back a hard-fought-for liberation from the colonial ISDS regime.

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