Chevron in Ecuador: A Question of Power

By Irene León

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Chevron (Texaco), one of the most powerful transnational corporations in the world, is complaining that it has been a victim of unjust treatment, denial of justice and other ill treatment, on the part of Ecuador, a small Andean country. It is developing a massive offensive, by diverse means, to claim for events that are alleged to have happened from 1964 to 1992, just when this country’s governments placed corporate interests above national priorities. They have thus just managed to oblige Ecuador to pay them 112 million US dollars [i], an amount that means a relatively greater impact precisely when the country is facing economic difficulties due to the fall in oil prices and the earthquake that seriously affected the coastal area last April.Why has such an unjust action been possible? The power scheme it is based on – which although foreseeable is no less scandalous – has already passed along a long winding track. The transnational, after having caused significant environmental damage in the Ecuadorian Amazon region, reversed the responsibility and with unsuspected arguments, presented, in 2009, litigation before the Permanent Court of Arbitration in the Hague[ii], accusing the Republic of Ecuador, that is to say the people and its institutions, of causing them extensive damage over a certain length of time.

Previously, Amazon populations affected by the very serious environmental damage caused by this same transnational during its operation in the country, pursued a court case known as that of the “afectados” (affected people) [iii], from 2003 to 2011, which culminated in a sentence in the national courts that obliges the corporation to pay an indemnity of 9.5 billion dollars to the claimants, who total around 30,000 people. Chevron has not only failed to comply with this sentence, but has responded by accusing the indigenous and peasant communities of extortion.

Obviously it has also ignored the court order to ask for pardon from the affected communities for the damage caused, an omission for which the original sentence stipulated an additional payment of 8.5 billion dollars. However, in November 2013, when the National Court of Justice of Ecuador ratified the sentence in favour of the affected Amazonian population, it eliminated the clause of punitive harm (requesting pardon), that was challenged by Chevron under the argument that punitive harm is not regulated in the national legal framework. Now, on the contrary, the corporation appears to expect the country to ask for pardon in the framework of the arbitration.

The arbitration claim of Chevron against Ecuador contains elements both of evading responsibility in the case of “the affected people”, as well as limiting the policies of productive, economic, and energy sovereignty defined by the country. Corporations recur to this type of arbitration given their extrajudicial character, their speed and distance from the “rudiments” of international legislation, demanding the counties to renounce their national prerogatives and in some cases their international ones.

Moreover, as the expert Gus Van Harten [iv] points out, only corporations can sue governments and the latter can scarcely defend themselves in litigation cases that are neither independent, nor transparent and whose procedures are not clear. The claimants also exercise direct influence on the selection of judges, on defining the location of the arbitration and other elements that thus optimize the conditions for repeatedly obtaining results to their advantage.

This is manifest in the litigation case Chevron has presented against Ecuador. In the proceedings, procedural variations have been introduced, including the constant inclusion of new elements, the subdivision of issues and even a restart that allowed the company to add new allegations to the case already underway. Meanwhile, for years, Ecuador’s defence failed to obtain a response to their requirements, to the point where after an accumulation of unanswered questions, the country was obliged to request, though without success, the cessation of some of the arbitrators [v].].

At the same time, the definitions of “damage” or “injustice” with which the corporation formulates their demand do not refer to known conceptualizations of inequality or injustice attached to human rights principles, but point to a vague hindrance of “most favoured treatment” for investment, trade and profit, that has become an unappealable argument in the international arbitration tribunals.

The seat of arbitration is in the United States, a country recognized for its significant symbiosis between the corporate economy and the political world. As Alejandro Teitelbaum [vi], author of an important work on transnationals, human rights and democracy, points out, an illustrative case is that of the former Secretary of State of the United States, Condoleeza Rice, member of various corporations, whose services in the board of directors of Chevron were so appreciated that they desired to give her name to an important ship [vii].

But this is not an isolated case; a number of studies and case follow-ups reveal data and figures on how the set of “mechanisms for the solution of controversies” contemplate, in the words of US writer Lori Wallach “special privileges and rights only for some: foreign investors to whom more power is given than to citizens and to governments” [viii].

Investment agreements are a part of this architecture of transnational trade, such as the Bilateral Investments Treaty (BIT) between Ecuador and the United States [ix], a mercantile umbrella under which Chevron has lodged their demand for arbitration, alleging to be the victim of denial of justice and of a supposed inter- sector collusion, among other things. Clearly this represents a retroactive application, since the BIT signed in 1993 only came into force in 1997, while the company left the country in 1992.

This kind of reiterated bias, revealing an excessive eagerness to protect, at whatever cost, the full legal security of investments undertaken by the multinationals, relegating the receiving States and their peoples to a second plane, means that rather than “rules” of transnational trade we should speak of a “legal architecture of impunity” [x].

Power in all its amplitude

Chevron is one of the major transnationals in the world, its operative income and sales alone in 2015 reached 129.9 billion US dollars [xi], equivalent to three and a half times the Ecuadorian national budget for that year — US36.317 billion [xii] — and 16 times the health care budget. Moreover, due to the drop in oil prices on the world market, 2015 was not a good year for the transnational, compared with 2014, when their operative income was 200.5 billion US dollars [xiii], that is to say, five and a half times more than the annual budget of the country.

Their power is expressed in their wide-ranging expansion in the world and in strategic operations and fusions, such as that in 2000 with Texaco. This practice of strategic and integral power is obvious also in the strategy of the arbitration demand against Ecuador, whose communicational, economic and political components act as the complement of a legal offensive with no holds barred.

Furthermore, the amplitude of their actions reveals that the arbitration demand is only one part of a strategic move related to the petroleum geoeconomy. One sign is the petition formulated to the US government in 2012 to suspend the tariff preferences to Ecuador, as a measure of indirect pressure.

In the process of arbitration, while Ecuador is accused of “collusion” between the government and the affected population and censures their possibility of meeting, the transnational moves outside of the arbitration tribunal when it so wishes, savagely attacking Ecuadorian institutions and their spokespersons with various adjectives. The words “corruption”, “fraud”, “in league” have even become arguments in the proceedings. This is reflected in a sustained communicational action to discredit the country, of a scope that writer Orlando Pérez associates with a strategy of a soft coup [xiv].

Ecuador, on its part, acting in an unequal terrain, has moved with circumspection, perhaps looking to preserve its reputation, unarmed in the face of a multiplicity of ruses, through which its situation of victim has brought it to the bench of the accused. This defence is both “defensive” and disciplined in the face of the conditions imposed by the arbitration mechanisms.

In this scenario, is there any other way out? Can the arbitration scene be reversed, especially when there are pending causes? Is it possible to establish a new equilibrium, in the light of new evidence that indicate the damage caused to Ecuador?

There is an abundant bibliography, with significant academic credentials, that demonstrates the bias of the arbitration system and the investment treaties, such as that shown by the transnational in its accusation against Ecuador. Also in debate is the imbalance of an unjust system that prioritizes the security of private investments and situates countries as contenders of a lower rank, who must defend themselves without recourse to the great wealth of international and human rights legislation, as if the questions of sovereignty were only a misunderstanding of the contractual terms.

An extrajudicial international complaint against the Republic is not a simple trial, since, in addition to sovereignty, it has to do with the geoeconomics and geopolitics of oil. In other words, it is a matter of State that impacts the people and their institutions that should be committed to a sustained strategy of integral and multidisciplinary defence.

In addition, Ecuador, as elements for its defence, not only has evidence of ecocide [xv] that produced irreversible consequences in one of the most biodiverse areas of the world, but also the fact that, in the 24 years that have passed since the corporation left, the remains of some 800 uncovered pools of toxic residuals have contaminated the water, air and earth, prevented agricultural practice, wrecked the habitat, caused illnesses, and had other harmful effects.

This is only part of the consequences of a deliberate bad environmental practice by Texaco, since, as President Rafael Correa has pointed out, at that time the technology already existed to avoid such ecocides. The ecocide caused in Lago Agrio by Chevron-Texaco is 85 times bigger than that caused by the British Petroleum accident in the Gulf of Mexico [xvi] in 2010, a case that did benefit from immediate environmental reparations, since the United States reacted as the affected country.

So, from a geopolitical viewpoint, and especially one of defence of sovereignty, a documented exposition of the facts and figures could be decisive, to show the world the evidence of contamination. This was the line assumed by President Correa, supported by the constitutional mandate of defending the people, sovereignties and territories. This fact marks an historical milestone, retrieving a sense of responsibility in the management of the State in accordance with their own legitimate interests, contrary to the tendency of deference of previous government leaders, who acted rather as auxiliaries of foreign corporations.

The dynamics this put in motion made it possible to engage with social movements, personalities, different social actors across the world, who have assumed the defense of Ecuador in the face of this aberrant reversal of roles. At the same time, many institutions, national Congresses, international bodies and even OPEC have expressed their solidarity with the country.

The payment, the embargoes and other confusions

Chevron bluntly employs arguments from the lawsuit of the “afectados” to support their arbitration case: they maintain that this lawsuit – pursued by the population as a private demand, and not by the State – infringes the aforementioned Bilateral Investment Treaty; they ask the country to order an end to the actions undertaken by these communities in other countries that are seeking to have the court sentence applied there. Moreover, they denounce as a lack of fulfilment of arbitration decisions, the fact that the government has not annulled the court sentence of Lago Agrio [xvii] nor restricted the subsequent actions of the Amazonians (xviii]. In other words, they go so far as to demand that one branch of the Ecuadorian State – the Executive – should intervene in another independent function – the Judiciary –; yet, at the same time, and in contradiction with this position, they accuse as fraudulent any interchange between nationals – the national government and the collective of the “afectados”.

With this arbitrary and contradictory treatment imposed by Chevron in the arbitration case, a tangle of judgements and appeals is maintained, in distinct parts of the world, to elude the payment pending for the Amazonian indigenous and peasant “afectados”. Thus there is a complex and confusing context, as was made evident in the recent incident of the payment of 112 million US dollars, that the country was obliged to pay to the transnational for an arbitration decision on “denial of justice”.

The “afectados”, for their part, in the search for mechanisms to force compliance with the sentence in their favour, initially demanded an embargo on the goods of Chevron in Ecuador and other countries. Therefore, when the payment of Ecuador to Chevron was announced, the Amazons claimed that the total amount from the arbitration sentence should be given to them as an initial down payment on the 9.5 billion that the transnational owes them.

Meanwhile, Chevron intended to apply an embargo on Ecuadorian goods, to capture by force the 112 million, while still evading their responsibility towards the “afectados”, who in turn had to raise the embargo in Ecuador, under the consideration that they are part of this country and that any confiscation of national goods does not constitute a compensation for them, nor for the Ecuadorian people, but rather the reverse.

In synthesis, Chevron has not only come out of this scot-free, but has managed to shift the country from their role as victim to the bench of the accused; moreover, it has been paid instead of paying, since it has illegitimately and unjustly received a heavy sum while eluding the payment the court sentence obliges them to pay to the “afectados”. And the saga continues since the arbitration decision is only one component of a much broader demand still in process.

The country is caught up in the trap of an arbitration system that has more to do with transnational business than with systems of justice. To escape from this trap, it is urgent to renew the defence strategy, with a more integral view than ever, dedicated to defending the people and their sovereignty; and for this, every Ecuadorian counts, every solidarity action counts, as does each gesture of coherence.

Notes:

[1]  Between 1991 and 1993 Texaco (Chevron) presented seven trade-related claims to Ecuador, for events that occurred in previous decades. In 2016 the Federal Court in Washington upheld a sentence of ‘denial of justice’ of the International Court of Arbitration at The Hague, which forced the country to pay 96.3 million dollars, plus interest, to the transnational. (The references in this article are to US dollars).

[2]  Permanent Court of Arbitration, PCA Case No. 2009-23: 1.Chevron Corporation and 2. Texaco Petroleum Company v. The Republic of Ecuador, https://pcacases.com/web/view/49

[3]  Juicio 2003-0002, Corte de Justicia de Sucumbíos, Juez Nicolás Zambrano, febrero 2011. http://www.redibec.org/pdf/sentencia_TEXACO.pdf

[4]  Gus van Harten, Five Justifications for Investment Treaties: A Critical Discussion, York University – Osgoode Hall Law School, 2010, Canadá, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1622928

[5]  Diego García Carrión, Caso Chevron: defensa del Ecuador frente al uso indebido del arbitraje de inversión, Procuraduría General del Ecuador, Gestión 2008-2015, Ecuador, 2015

[6]  Alejandro Teitelbaum, Al Margen de la Ley: Sociedades Transnacionales y Derechos Humanos. ILSA, Bogotá: 2007, pag. 86

[7]  Idem 6, pag. 87

[8]  Transnational Institute, Laurie Wallach, ‘Public policies under attack’, Netherlands:2015, https://www.tni.org/es/node/22496

[9]  SICE, Tratado entre la República del Ecuador y los Estados Unidos de América sobre promoción y la protección de inversiones,  http://www.sice.oas.org/bits/usaec_s.asp

[10]  Juan Hernández Zubizarreta y Pedro Ramiro, Contra la lex mercatoria: Propuestas y alternativas para desmantelar el poder de las transnacionales, ICARIA, España 2015

[11]  Chevron, 2015 Annual Report, https://www.chevron.com/-/media/chevron/annual-report/2015/2015-Annual-R…

[12]  Ministerio de Finanzas, ‘Proforma del Presupuesto General del Estado’, República del Ecuador 2015, http://www.finanzas.gob.ec/wp-content/uploads/downloads/2014/11/Proforma…

[13]  Idem. 11

[14]  Orlando Pérez, co-author of the book La verdad no contamina, El Telegrafo, Ecuador, 2014, estimates that Chevron’s communication campaign, which he assimilates to the strategy of a soft coup, has cost the company 700 million dollars.  http://ecuadorinmediato.com/index.phpmodule=Noticias&func=news_user_view…

[15]  80,000 tons of petroleum residues were discarded between 1964 and 1992, in an area of 500,000 hectares, in Lago Agrio, Ecuadorian Amazon region.

[16]  In 2015, British Petroleum promised an indemnity of 20.8 billion dollars, for the oil leak of 4.9 million barrels of crude oil in the Gulf of México, in 2010 http://www.bp.com/en_us/bp-us/commitment-to-the-gulf-of-mexico/deepwater…, http://internacional.elpais.com/internacional/2015/10/05/actualidad/1444…

[17]    Idem 3

[18]  According to Chevron, the situation is this: “On February 7, 2013, the Tribunal issued its Fourth Interim Award in which it declared that the Republic of Ecuador “has violated the First and Second Interim Awards under the [BIT], the UNCITRAL Rules and international law in regard to the finalization and enforcement subject to execution of the Lago Agrio Judgment within and outside Ecuador, including (but not limited to) Canada, Brazil and Argentina.” The Republic of Ecuador subsequently filed in the District Court of the Hague a request to set aside the Tribunal’s Interim Awards and the First Partial Award (described below), and on January 20, 2016, the District Court denied the Republic’s request.” Chevron, 2015 Annual Report, pgs 50-53 https://www.chevron.com/-/media/chevron/annual-report/2015/2015-Annual-R…