In 2003, a group of Ecuadorian nationals sued Chevron and Texaco Petroleum over environmental claims from oil drilling operations of various companies in Ecuador. In 2009, the companies began an arbitration against Ecuador under the U.S.-Ecuador Bilateral Investment Treaty (BIT), citing Ecuador's failure to provide fair and equitable treatment to an investor of the United States as required by the BIT, in part because of alleged government collusion in the litigation, breach of a previous settlement agreement, and the improper use of the judicial system to generate sham criminal charges against attorneys for the companies and other acts in disregard of Ecuadorean law. Ecuador went to U.S. court to prohibit the BIT arbitration, but the trial judge allowed it to proceed. That ruling was appealed to the U.S. Court of Appeals for the Second Circuit.
The NAM and the Emergency Committee for American Trade filed an amicus brief 7/1/2010 arguing that the BIT arbitration procedure should proceed, and a U.S. court should not interfere with it. U.S. courts lack the legal authority to prevent such arbitration under an international treaty, and such interference would subvert the purpose and viability of the U.S. BIT program, which is very important to promote U.S. foreign-policy objectives. Such treaties ensure that U.S. foreign investors have basic international protections in their activities abroad, including access to a neutral and objective forum for the resolution of disputes, in order to promote investment, economic growth, development, stability and other important foreign-policy goals.
On March 17, 2011, the Second Circuit affirmed the lower court's ruling, holding that any challenges Ecuador wants to make to Chevron's right to arbitrate should be made before the arbitral panel. The court concluded that Chevron could initiate BIT arbitration without undermining the district court's earlier dismissal of the case on grounds of forum non conveniens. The BIT constitutes a standing offer to arbitrate disputes covered by the Treaty, and Chevron's written demand for arbitration constituted an agreement in writing to submit the dispute to arbitration. Once in arbitration, the dispute is subject to UNCITRAL rules that leave questions about arbitrability to the arbitral panel. Chevron's dispute with the government of Ecuador can proceed to arbitration, while the lawsuit by the Ecuadorian nationals can continue as well, without conflicting. One of Chevron's claims in arbitration is that Ecuador must honor its contractual obligation to indemnify it for environmental claims, since that obligation was transferred to Ecuador years before.
There are over 2,500 BITs around the world, including 40 involving the United States, along with seven U.S. free-trade agreements with 13 countries that contain substantially similar provisions. The parties to a bilateral investment treaty each consent to the submission of any investment dispute for settlement by binding arbitration. Such dispute resolution is quite fair, and foreign governments win those disputes more often than not. By promoting investment abroad, BITs have important benefits for the U.S. economy, U.S. companies and U.S. workers.