(By Damon Vis-Dunbar)

As negotiations on a US free trade agreement (FTA) with Peru, Ecuador and Colombia enter the eleventh hour, the positions of the three Andean countries appear to diverge with respect to rules on foreign investment.

Colombia admits a number of key elements in the proposed investment chapter still need to be agreed to, while informed sources from Peru say that apart from “a couple minor details”, they have no outstanding issues to resolve.  

Meanwhile, Ecuador already has a bilateral investment treaty (BIT) with the US, but the Ecuadorian Government is hesitant to see it superseded by new investment disciplines in an FTA.

Earlier this year, Colombia published a detailed list of its negotiating positions beside the “assumed” positions of the US, revealing areas where disagreement existed.  A number of these remain unresolved, including rules for the settlement of disputes.

Colombia said it was pushing for “predetermined rules and institutional forums to settle investor-state disputes,” while the US was said to promote “broad options … for dispute resolution, including ad-hoc forums” – a seeming reference to UNCITRAL arbitration which may occur outside the supervision of an arbitration facility.

Meanwhile, a Peruvian official says that investment “was one of the easiest chapters for Peru,” and that outstanding issues “were pretty much finished (during) the last round.” A few “minor” details will be ironed out before the next set of formal negotiations, said this source.

“Investment areas are not a big issue (for Peru)” confirmed Mario Tello, a professor of Economics at the University of Florida who has been advising the Peruvian negotiating team during these FTA talks.  

“Peru has very open (foreign investment) laws already,” said Dr. Tello.  

Ecuador, which signed a BIT with the US in 1997, appears farthest from agreeing to rules in a new FTA.

The offer proposed by the US is similar to that agreed with Morocco in a separate recent FTA negotiation, according to an Ecuadorian source.  Morocco had a pre-existing BIT with the US when it entered in to FTA talks in 2003, but the country ultimately agreed to a new investment chapter of the FTA which superseded the old BIT.

“Ecuador is not comfortable with this proposal,” said the Ecuadorian source.

One provision in particular, which would extend the definition of an investment to those with the intention to invest, but who did not actually do so, was of particular concern to Ecuador, said this source.

Ecuador has suggested waiting until 2007, ten years after the ratification of the BIT, at which point either of the two parties could terminate the agreement with one years notice.  In other words, Ecuador is willing to kill the existing treaty, but they are not eager to renegotiate a new one.

This defensive posture is not surprising, perhaps, given the number of ongoing disputes which have arisen out of the current US BIT, several in relation to Value-Added Tax rebates in the hydrocarbons sector.

After losing one such arbitration in 2004, to US-based Occidental Petroleum, the Ecuadorian Government made noises about tearing up the US BIT.

Ecuador’s posture towards US investors has led US business groups to question the wisdom of further trade concessions for the country. Last year, a representative of the US Chamber of Commerce told a sub-committee of the House Committee on International Relations that Ecuador should settle the “great majority” of investment disputes before the US agrees to a FTA.  

In a recent country-report, the US Commerce Department has warned US investors that “the Government of Ecuador does not always honor its obligations with respect to the (Bilateral Investment) Treaty.”

At this point in negotiations of the US-Andean FTA, it still remains unclear whether negotiators will conclude a single agreement encompassing all four countries, or separate hub and spoke bilateral agreements with the US as the hub – which would free the US to put certain of the countries on a fast-track, and others on a slower track.

For their part, the Andean Governments have stated that they would like to sign the proposed FTA on November 22, leaving time to have it ratified before all three countries conduct presidential and congressional elections next year.  The goal, therefore, is to make the next round of negotiations, slated for November 14, to be the last.