Ecuador Pushes Back Against Chevron's Drive To Suspend Trade Preferences
Ecuador Pushes Back AgainstChevrons Drive To SuspendTrade PreferencesPosted: October 2, 2012Ecuadors attorney general last week strongly rejected claims byChevron that the country has failed to comply with an interim rulingby an investor-state arbitration tribunal and that the U.S. shouldtherefore suspend unilateral trade preferences it currently extends toEcuador under the Andean Trade Preferences Act (ATPA).In a Sept. 28 interview with Inside U.S. Trade, Diego Garcia Carrionsaid he met with Obama administration officials last week to conveythe message that Ecuador has complied with all of its internationalobligations, including arbitral awards issued under the U.S.-Ecuadorbilateral investment treaty (BIT).The conflict between Chevron and Ecuador stems from a court rulingin Ecuador last year that sided with indigenous plaintiffs and faultedChevron for $18.2 billion in environmental damage caused byTexaco, a company it later acquired.But a tribunal convened under the U.S.-Ecuador BIT earlier this yearmade an interim decision in which it instructed the government ofEcuador -- whether by its judicial, legislative or executive branches -- to hold off on enforcing the multi-billion dollar judgment againstChevron until related BIT proceedings conclude. Chevron arguesthat Ecuador has not complied with this interim BIT decision, andthat the company therefore still faces the massive penalty.Garcia, however, made the case last week to Obama administrationofficials that Ecuadorean law prevents the government frominterfering in domestic court proceedings, and that it thereforecannot force the court to comply with the BIT tribunals interimaward. He said the government had done everything legally within itspower by notifying the judge in the case of the interim award.
“This decision rests with the judge, and any action by the attorneygeneral or … any government official in trying to ensure theinternational [BIT] tribunals decision is carried out … would be aninterference in the administration of justice in Ecuador,” Garciamaintained.In a Sept. 17 submission to the Office of the U.S. TradeRepresentative, the Ecuadorean government said that after the courtwas briefed on the implications of the BIT tribunals interim award, it"noted a conflict in the States respective international lawobligations."To settle this conflict, the court then interpreted Ecuadoran law anddetermined that Ecuadors obligations under human rightsconventions "prevail over other international obligations," such asthose contained in the BIT. For this reason, the court found it shouldnot halt domestic proceedings in order take the BIT tribunalsdecision into account, according to the submission filed byEcuadorean Ambassador Nathalie Cely.Garcia said he held meetings last week with officials from theState Department, Commerce Department and the Office of theU.S. Trade Representative, as well as on Capitol Hill.Those discussions were aimed at rebutting “the message thatChevron has been carrying to the U.S. government and Congress, tothe American public opinion … that Ecuador is not in compliancewith its international obligations, and acts outside the commitmentsmade in bilateral treaties with the United States,” Garcia said.Asked how U.S. officials responded to his arguments, Garcia saidthere was no response per se because it was not his intention toobtain a decision by U.S. authorities. “It was simply the search for aspace in which the position of Ecuador could be heard,” he said.“Its not my job to obtain these decisions.”Garcia stressed that as attorney general, he does not get involved inthe trade or diplomatic aspect of bilateral relations.
Chevron and U.S. business groups such as the EmergencyCommittee on American Trade (ECAT) last month submitted theirown comments to USTR requesting the withdrawal or suspension ofEcuadors trade benefits under ATPA, which was amended by theAndean Trade Promotion and Drug Eradication Act. They argue that,by failing to enforce the tribunals interim award in the Chevronarbitration, Ecuador has failed to meet one of ATPAs eligibilitycriteria.Specifically, the ATPA states that the president shall not designateany country as a beneficiary country “if such country fails to act ingood faith in recognizing as binding or in enforcing arbitral awards infavor of United States citizens” or a company that is 50 percent ormore owned by U.S. citizens.Identical language exists as one of the eligibility criteria for theGeneralized System of Preferences (GSP) program. PresidentObama earlier this year suspended Argentinas trade preferencesunder that program because it has failed to pay two awards owed toU.S. companies in investor-state disputes (Inside U.S. Trade, March30).Asked during the interview whether that move was worrisome to theEcuadorean government, Garcia drew a clear distinction betweenthe behavior of Ecuador and Argentina, noting that Ecuador hascomplied with arbitral awards that have been handed down againstit.“There shouldnt be any worry or confusion about the actions of ourcountry with the actions of other countries that have shown openlytheir decision not to comply with certain arbitral awards,” he said.“That is not the case of Ecuador.”A Sept. 27 statement from the Embassy of Ecuador echoed theattorney generals remarks, noting that the country has alwayscomplied with “unfavorable judgments” in investor-state suits,including in two cases involving Occidental Petroleum and DukeEnergy.
The comments submitted by stakeholders to USTR last monthare part of an annual review of countries ATPA eligibility.Ecuador is the only country now benefiting from ATPA, as Peru andColombia graduated from the program after their bilateral FTAs withthe U.S. went into effect and Bolivias participation was suspendedin 2008. The program is set to expire on July 31, 2013.USTRs regulations require it to publish the results of a preliminaryreview of the petitions in the Federal Register on or about Dec. 1,after which it must accept a new round of public comments and holda hearing on any proposed action. The agency would then prepare arecommendation to the president, who would make a decision inFebruary or March, according to the regulations.In their comments, ECAT, the National Association of Manufacturers,National Foreign Trade Council, and U.S. Council for InternationalBusiness all argued that Ecuador had failed to meet the ATPAeligibility criterion relating to enforcement of arbitral awards. ECATalso said Ecuador had failed to meet other ATPA eligibility criteriarelating to expropriation of property and nullification of contractswith a U.S. company, but did not provide details.In its 13-page comment, Chevron said its petition for withdrawal ofEcuadors ATPA benefits should be treated as an urgent matterwarranting “immediate review” due to “exceptional circumstances.”It argued that any delay in acting on the petition would cause thewithdrawal of suspension of Ecuadors trade preferences to beineffective, if the court judgment against Chevron in Ecuador isenforced before that time.The oil company also laid out detailed arguments as to how Ecuadorhad failed to comply with the first and second interim awards of thearbitration tribunal, handed down on Jan. 25 and Feb. 16,respectively. The second interim award directed Ecuador “to take allmeasures necessary to suspend or cause to be suspended theenforcement and recognition within and without Ecuador” of the$18.2 billion judgment in the environmental case. Chevron stressedthat these awards are binding on the entire government of Ecuador,including the courts.
Specifically, Chevron argued that Ecuador had “multipleopportunities” to take action consistent under the second interimaward, but failed to take any of them. It provided an illustrative list ofactions that Ecuador could have taken, including the issuance of anopinion by the executive branch or courts that the judgment issuspended, or that the judgment is not enforceable underEcuadorean law pending the outcome of the BIT arbitration.At the same time Ecuador failed to take any action to suspend thejudgment, its courts have taken several affirmative steps to promotethe judgments enforceability, Chevron said. For instance, on Aug. 3a provincial court issued an “execution order,” which is thedocument definitively causing the judgment to become enforceableas a matter of Ecuadorean law.Finally, Chevron argued that Ecuadorean executive branch officialshave actively encouraged the plaintiffs in the environmental suit toseek enforcement of the judgment, noting that President RafaelCorrea himself referred to the arbitration proceeding a “monstrosity.”“Such statements are a blatant interference with the judicial process,which in this case, amounts to a breach of Ecuadors obligation torecognize and enforce the arbitral tribunals interim award,” thecompany said.In her Sept. 17 submission to USTR, Cely made two mainarguments: that Ecuador participation in ATPA is in the nationalsecurity and economic interest of the U.S., and that the countrymeets the ATPA eligibility criterion relating to arbitral awards.Like the attorney general, she reiterated that the Ecuadoreangovernment was unable to intervene in the lawsuit, and that thedecision of how to respond to the interim awards was left to thejudge in the case. “Because the government of Ecuador has nopower to order the courts to interfere in private-party litigation anymore than the Government of the United States can order its courtsto do so, the precise effect of the interim award was left to thecourts,” she wrote.