Since the entry into force of the 2008 Constitution (“CRE”), Article 422 has become one of the most debated provisions of Ecuador’s constitutional text. For more than a decade, its application has been marked by divergent interpretations, contradictory judicial decisions, and a political burden that has ultimately blurred its true legal scope.
The underlying question is simple, although its implications are not: does the CRE really prohibit the Ecuadorian State from resorting to international arbitration in commercial, contractual, or investment disputes? My position is that it does not. Article 422 of the CRE does not establish an absolute prohibition on international arbitration, but rather a specific and limited restriction, linked to the source of international arbitration and to certain clearly delimited material areas.
The constitutional text prohibits the Ecuadorian State from transferring sovereign jurisdiction to international arbitration bodies when such “transfer” is effected through treaties or international instruments, and only in contractual or commercial disputes between the State and private parties. This distinction is central. The rule does not eliminate international arbitration as a dispute resolution mechanism, nor does it declare it incompatible with the constitutional order. On the contrary, arbitration—both domestic and international—is expressly recognized in Article 190 of the CRE as a legitimate tool for resolving disputes.
The debate, therefore, should not focus on the validity of international arbitration as a dispute resolution mechanism, but rather on the manner in which it is incorporated into the legal system. The constituent power chose to limit the possibility that, through general norms such as international treaties, the State might anticipate renouncing its jurisdictional authority in matters that form part of its sovereign sphere. It is, therefore, a prohibition relating to origin, not a prohibition based on subject matter, nor a structural challenge to arbitration.
In other words, there is no prohibition—based on subject matter—for the State to resort to international arbitration in contractual, commercial, or foreign investment matters. In fact, the domestic legal framework expressly allows it and, in certain cases, even provides for it as mandatory—pursuant to the unnumbered article following Article 16.2 of the Organic Code of Production, Trade, and Investment. The prohibition, as stated, concerns the source of the arbitration, not the subject matter.
In this regard, it is also essential to clarify that, from a constitutional perspective, foreign investment constitutes an autonomous matter, distinct from commercial or contractual issues. This was the understanding of the constituent power—see, for example, Articles 336, 338, and 416(12) of the CRE—when differentiating between commercial matters, contractual matters, and those relating to foreign investment. Otherwise, that is, if no such differentiation existed, the constituent power would not have made such a distinction between contractual and commercial matters in Article 422.
On the other hand, one of the main sources of confusion and debate has been the notion of “sovereign jurisdiction.” This concept cannot be understood in an indeterminate manner. Sovereign jurisdiction is linked to scenarios in which the State acts with imperium authority and applies domestic law on an exclusive basis. When the State intervenes on equal footing with private parties—as occurs in certain contractual relationships or in the performance of international obligations—there is no transfer of sovereign jurisdiction in the strict sense.
This distinction helps explain why the constitutional prohibition cannot be automatically extended to bilateral investment treaties (“BITs”). Disputes arising under an investment treaty are not, by their nature, domestic contractual or commercial disputes, but rather disputes concerning the fulfillment of international obligations assumed by the State.
In such cases, there is no natural national jurisdiction that must prevail, nor any sovereign authority that can be transferred, since the dispute lies outside the scope of domestic law and, moreover, there is no “sovereign jurisdiction” competent to determine whether the State has complied with its commitments to the international community.
Additionally, investment arbitration under BITs does not operate as an automatic imposition on the State. BITs actually contain a unilateral offer of arbitration by the State, which is perfected only if the investor decides to accept it. The arbitration clause is neither immediately nor mandatorily triggered.
By way of conclusion, in my opinion:
- It is unsystematic to argue that a BIT—whose essential function is to regulate a unilateral offer of international arbitration by States—is incompatible with the constitutional text. First, because there is no restriction, and the prohibitions of Article 422—as explained above—do not extend to this subject matter. Second, because such an argument would be ineffective and futile, given that under the current constitutional and legal framework, the State could, in any event, agree to international arbitration with a private party in an investment contract, without the need for a BIT.
- Article 422 of the CRE merely establishes a prohibition based on the origin or source of international arbitration in certain matters. This prohibition of origin refers to arbitration established through an international instrument—conceived as a norm—and not through a contract. Under no circumstances does this provision introduce a new non-arbitrable subject matter for purposes of resorting to arbitration, whether domestic or international.
Palacios Abad, X. (2021). Constitutional prohibition for Ecuador to agree to international arbitration in commercial and investment matters? A new look at Article 422 of the Constitution. USFQ Law Review, 8(1), 261–282. Retrieved from: https://dialnet.unirioja.es/servlet/articulo?codigo=8099914
Written by:
Xavier Palacios Abad
Senior Associate