The Mining Fee created by ARCOM not only has the unintended effect of deterring and discouraging the exploratory potential of the mining industry in Ecuador, but it also poses a potential threat to the vested rights of mining concessionaires. These vested rights can be found in the applicable Bilateral Investment Treaties (BITs) and in the investment contracts signed with the State itself. These instruments generally establish minimum standards that the State must observe in its treatment of both investors and their investments.
For example, if we take the Ecuador–Canada BIT, it prohibits “…measures having an effect equivalent to nationalization or expropriation (…) except for a public purpose, under due process of law, and in a non-discriminatory manner…”. If the fee turns out to be a disguised tax that was not created in accordance with the proper legal procedure or that, in turn, discriminates against the mining industry compared to others, then we could be facing a potential violation of that BIT.
Likewise, investment contracts in the mining industry include specific protections such as legal and tax stability. In short, this would limit the State’s ability to change the rules of the game halfway through and, alternatively, would entitle investors to oppose the application of the fee.
If the Mining Fee —currently subject to several constitutional challenges— ends up this July interfering illegitimately and harmfully with investments protected by BITs or investment contracts, the Ecuadorian State could face international claims. Such a scenario would do little to help its already strained public finances and, more importantly, would hinder the development of one of the country’s most promising industrial sectors.
It is crucial that the State reassess the cost–benefit balance of the Mining Fee. When all is said and done, the roughly USD 200 million expected to be raised by this measure would fall far short of the foreign investment that would no longer arrive—and, above all, of the reputational damage to the country as a destination for responsible mining investment.
By Juan Carlos Herrera Q.
Attorney in International Disputes & Investment Protection | Univ. of Geneva | MBA, UDLA
Originally published in Spanish at: Mundo Minero