The benefits of the ICSID Convention vis-à-vis foreign investors

The benefits of the ICSID Convention vis-à-vis foreign investors - CorralRosales - Sofía Rosales - Lawyers Ecuador

During this past month, Ecuador’s ratification of the ICSID Convention and its direct influence on the attraction of foreign investment has been the subject of many comments.

Why is it key to attracting foreign investment? Dispute resolution under the ICSID Convention has many advantages, and particularly regarding arbitration, there are 3 main characteristics that make it so attractive to investors: (i) it is an institution specialized in international investments; (ii) it provides for the automatic recognition of awards; and (iii) it has its own procedure for annulment of awards. Below an analysis of these characteristics:

  1. Specialized institution in international investments:

Having an arbitration administered by ICSID gives the investor the security of having a global and independent institution specifically dedicated to the settlement of international investment disputes. It is often difficult for a foreign investor to invest in a country if, in the event a dispute arises, it would be resolved by the country’s own courts. This generates a disadvantage for the investor and a feeling of lack of protection, especially considering that local courts often do not have the necessary experience in this field.

In an arbitration administered by ICSID, an impartial arbitral tribunal, which is expert in the subject matter, and has an in-depth knowledge of international investment disputes- which are often the cause of disputes- is constituted.

  • Automatic recognition of awards:

The Contracting States – currently numbering 156 (including Ecuador) – are compelled to automatically recognize the award rendered under the ICSID Convention, as if it were a decision issued by the courts of that country, i.e., without the need to carry out the formal recognition procedure known as exequatur. This facilitates, simplifies, and significantly shortens the time in which the award is enforced, which means less time and costs for both the investor and the State.

  • Procedure for annulment of awards:

As a general rule in international arbitration, an action for annulment of an award is brought before the ordinary courts of the country of the seat of arbitration. On the contrary, in the case of an arbitration administered by ICSID, such action is brought before the Center itself, in such a way that that no local courts of any State are involved, but an ad hoc commission composed of 3 individuals selected from the list of arbitrators of the Center (other than the members of the tribunal that rendered the award, and of different nationalities from any of the members of such tribunal and the parties) is appointed.

In conclusion, the protection derived from the arbitration procedure under the ICSID Convention enhances the foreign investor’s environment, which, undoubtedly, added to other measures adopted by the government, could turn Ecuador into a sort of investment hub in Latin America.

Sofía Rosales
Asocciate at CorralRosales