Author Archives: SOPORTE PUBLITEK

The Superintendency of Market Power Control (SCPM) published the “Methodology for the identification, review, and elimination of regulatory barriers” on November 5, 2020. It will serve as a guide to remove regulatory barriers to promote the participation of various operators in the market.

The Constitution establishes the principle of the prevalence of public interest over private interest as a guide for state and social activity and recognizes the right of people to develop economic activities, individually or collectively, in accordance with the principles of solidarity, social and environmental responsibility and the power of State intervention in economic activities to promote forms of production that ensure the welfare of the population and discourage those that violate their rights or those of nature.

State intervention through the regulation of economic activities is legitimate as long as it achieves a balance of these guarantees and powers, in the sense that the regulatory restrictions imposed on the entry and permanence of economic operators in the different markets are useful, reasonable, proportionate, and sufficient to guarantee public interest but not constituting an entry barrier for the development of efficient markets.

The methodology developed by the SCPM is intended to promote free competition and market efficiency, by verifying the legitimacy of regulatory barriers and, based on this analysis, the subsequent proposal for regulatory improvements or their elimination.

The procedure comprises two phases: on the one hand, the test of legality, in which the authority’s faculties to issue the regulation under analysis are verified, and then the coherence of said regulation with the law in force, in consideration of the hierarchy of the norms determined in the Constitution. If it is determined that the regulation is illegal in the first phase, either because the authority did not have the faculty to issue it or because it contradicts a regulation of higher hierarchy, the SCPM must propose its elimination.

If the regulation passes the test of legality, in the second phase, the SCPM must weigh the reasonableness and proportionality of the restriction it imposes, against the protected legal good: the public interest. For this analysis, the SCPM must determine, in the following order:

• The appropriateness of the measure imposed by the regulation to achieve the purpose it pursues. That is, if the means employed – the restriction imposed – is indeed useful to protect the public interest.
• The need for the measure: At this point, it must be determined if there are less restrictive alternative measures useful to achieve the goal.
• The proportionality of the measure in the strict sense: In other words, the weighting aimed at balancing the degree of restriction imposed by the regulation and the importance of the legal good that it seeks to protect.

If, after this analysis, the SCPM determines that the rule that imposes the entry barrier is not reasonable, it will propose improvements or elimination, as appropriate.

Several countries in the region have recently initiated regulatory review processes to implement improvements to eliminate regulatory entry barriers that imply illegitimate restrictions on competitiveness. Colombia issued the Anti-paperwork Law in 2019. In Peru, citizens can report regulatory barriers that they consider illegitimate to the antitrust authority and its decision regarding, for example the non-applicability of such regulation (with general or particular effect, depending on the case) is binding on the administrative authorities that issued such regulation.

In Ecuador, the review of regulatory barriers is carried out solely by order of the Superintendent of Market Power Control or the Technical General Intendant, either: (i) ex officio (ii) based on a request of a public administration entity, or  (iii) in application of a recommendation issued by the SCPM study divisions. However, in the introduction of the Methodology for the identification, revision, and elimination of regulatory barriers, the Superintendent of Control of Market Power expressly encourages the public to collaborate to identify regulations that fall under these parameters. Since there is no specific procedure for the public to request the review of regulatory barriers, the request would be based on the petition right guaranteed in the Constitution.

We will have to wait for the practical application of the “Methodology for the identification, review, and elimination of regulatory barriers” to determine if the recommendations made by the SCPM have a sufficient ground of legality and reasonableness so that the corresponding authorities are compelled to implement them.

Ana Samudio
Associate at CorralRosales
asamudio@corralrosales.com

The economic crisis, worsened by the pandemic, has forced Ecuador to place greater emphasis on its interest in attracting national and foreign investment. Several measures and mechanisms have been designed to achieve this objective. Among these mechanisms, the investment contract draws the attention of several investors since it offers stability in tax incentives^[1] and, tax stability for contracts that exceed US $ 100 million, and large-scale mining projects. Another feature of the investment contract, which attracts investors, is the possibility of using arbitration as a dispute resolution mechanism.

In August 2018, the Law for Productive Development, Attraction of Investments, Employment Generation, Stability and Fiscal Balance amended the Code of Production, Trade and Investment (COPCI) in order to force the State to agree to arbitration to resolve disputes generated in investment contracts^[2] and also to agree to arbitration in investment contracts that exceed US $ 10 million^[3].

The first unnumbered article included after article 16 of the COPCI provides: “Investment contracts.- The Ecuadorian Government shall agree to national or international arbitration to resolve disputes generated through investment contracts, in accordance with the Law.”

As a general rule, in order for two or more parties to be able to submit their disputes to the arbitration jurisdiction, the manifestation of that will is required. Unless stipulated in international instruments, article 42 of the Arbitration and Mediation Law requires the express authorization of the Office of the Attorney General for an entity of the Ecuadorian public sector to submit to international arbitration. In light of this, it is worth asking, could the Attorney General refuse to accept arbitration as a mechanism for the resolution of disputes in investment contracts? In an investment contract without an arbitration clause, is the State obliged to submit to arbitration a dispute arising from that contract?

In cases of disputes between investors and countries with legal provisions similar to those mentioned above, investment arbitration case-law favors arbitration. In the award of jurisdiction for the case of Tradex Hellas S.A. v. Republic of Albania, the arbitration tribunal considered that the consent of the State to submit disputes to arbitration jurisdiction was included in its legislation, when it stated:

“… although consent by written agreement is the usual method of submission to ICSID jurisdiction, it can now be considered as established and not requiring further reasoning that such consent can also be effected unilaterally by a Contracting State in its national laws the consent becoming effective at the latest if and when the foreign investor files its claim with ICSID making use of the respective national law. Therefore, the 1993 Law together with Tradex’s Request for Arbitration must be considered as sufficient consent (…).”^[4]

In the case Zhinvali Development Ltd. v. the Republic of Georgia the court found that despite the absence of a written arbitration agreement between the parties, the Georgia Investment Law contained a written offer to submit the dispute – among others – to the jurisdiction of ICSID, and that this constitutes written consent:

“Here, at the time that the Claimant filed its Request for Arbitration on December 3, 1999, there was (a) no bilateral investment treaty in force between Ireland and Georgia and (b) no written agreement between the Parties that submitted disputes to ICSID jurisdiction. Accordingly, the question becomes whether Article 16(2) of the 1996 Georgia Investment Law, in spite of Article 19 of the earlier 1994 Georgia Concession Law, did constitute Georgia’s written offer to submit this dispute to ICSID, which offer was later accepted by the Claimant when it commenced this arbitration.”^[5]

In the case of Southern Pacific Properties (Middle East) Limited v. the Arab Republic of Egypt^[6], the arbitral tribunal concluded that the phrase “shall be resolved”, referring to disputes, is a mandatory provision.

In light of these arbitration awards, the provision contained in the first unnumbered article included after article 16 of COPCI has two characteristics. The first is a mandatory provision for the State and, the second is an offer to submit to arbitration, which can be made effective at the time of initiating an arbitration procedure.

In conclusion: there are solid legal grounds for determining that any dispute arising from an investment contract should be submitted to arbitration jurisdiction, even if the respective contract does not contain an express convention on that matter.

^[1] Specifically, stability in the exoneration of the Tax on the Outflow of Foreign Currency for the distribution of dividends and importation of capital goods for the term of the contract

^[2] First unnumbered after article 16 of the COPCI

^[3] Second unnumbered after article 16 of the COPCI: “Arbitration.- For investment contracts that exceed ten million dollars of the United States of America, the State must agree to national or international arbitration in law, in accordance with the law. […] ”

^[4] Decision on Jurisdiction Tradex Hellas SA v Republic of Albania, ICSID ARB /, 1996

^[5] 94/2Zhinvali Development Ltd. v. Republic of Georgia ICSID Case No. ARB / 00/1, 2001

^[6] Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB / 84/3,

Jimmy Rodríguez
Associate at CorralRosales
jirodriguez@corralrosales.com