by MARIO OSORIO & PEDRO LABAYEN HERRERA
Ecuador is a nation that has weathered years of economic storms and political upheaval. Its struggles are perhaps best illustrated by its rapid descent from an “island of peace” in the 2010s to having the region’s second-highest homicide rate in 2025, behind only Haiti. Yet, for a time, Ecuador represented a successful social democratic project, prioritizing citizens’ welfare over foreign creditors. Today, like much of Latin America, it remains trapped in a geopolitical paradox, needing investment in education, science, and technology to escape the “middle-income trap.” Instead, a succession of myopic leaders has chosen the path of least resistance: maximizing short-term rents through the extraction of oil and minerals.
In a deeply misguided effort to facilitate this extraction, such leaders bind their countries to the obscure investor-state dispute settlement (ISDS) system, either through neocolonial agreements known as bilateral investment treaties (BITs) or through clauses hidden in “free trade” agreements (FTAs). We are told these treaties promote “reciprocal protection.” In reality, they are profoundly asymmetrical, granting transnational corporations privileges that no domestic company or citizen enjoys. Under ISDS, foreign corporations can sue sovereign states, while states have no comparable right to do the same. The result is a clear pattern: both investment flows and the legal claims they generate move overwhelmingly toward the benefit of corporations at the expense of sovereignty.
These lawsuits do not happen in national courts, but in opaque international tribunals generally under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank. The president of the United States always appoints the World Bank president, who also chairs ICSID’s Administrative Council, the governing body that appoints ICSID’s head. In this rigged casino, arbitrators (often corporate lawyers who cycle through a “revolving door,” acting as judges in one case and counsel in the next) decide the fate of public budgets. Corporations regularly invoke the bespoke construct of “indirect expropriation,” a legal fiction that rebrands legitimate public interest regulation — be it environmental protection or health laws — as a violation of a company’s expected future cash flow. Such lawsuits are not only extremely costly in legal fees and awards, they also produce “regulatory chill,” deterring governments from implementing necessary reforms, including climate measures.
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