INTRODUCTION AND SUMMARY OF ARGUMENT
Foreign investment abhors uncertainty, instability, and corruption and goes where investors believe they are likely to obtain a return on their investment.
Unfortunately, investment in many foreign countries often entails uncertainty and risk. To be sure, some measure of risk is inherent in investment, but excessive risk generated by the possibility of discriminatory or unfair treatment by a foreign government will drive capital away. This adversely affects United States companies who are denied investment opportunities and access to growing consumer markets in developing countries. It also adversely affects the foreign countries, which must pay a premium to obtain capital investment, if they can obtain it at all.
To protect United States investments abroad and encourage foreign states to adopt market-oriented policies that respect private investment, the United States has entered into bilateral investment treaties with 40 countries, including Ecuador.
The treaties provide United States investors with investment protections, and allow United States investors to resolve investment disputes with host nations through binding arbitration before a fair and impartial tribunal. Tens of billions of dollars in United States capital have been invested in developing countries as a consequence of these treaties and the important protections they provide.
Having entered a Bilateral Investment Treaty with the United States to obtain the benefits of United States investment, Ecuador now asks the federal courts for relief from its obligation to arbitrate an investment dispute with two United States companies who allege that Ecuador failed to accord their investment the protection guaranteed by the Treaty. The district court declined to grant this extraordinary relief, and this court should as well. Any action by a United States court to impede access to arbitration under a United States bilateral investment treaty would not only deprive United States investors of important treaty protections, but also could invite similar attempts by foreign states to impede access to arbitration under United States bilateral investment treaties. This would undermine the ability of United States bilateral investment treaties to serve their intended purpose of protecting United States investors and encouraging foreign countries to development market-oriented policies that treat private investment in an open, transparent and non-discriminatory way.
Federal courts have no such authority to disregard United States treaty obligations and undermine United States foreign policy interests. The injunction Ecuador seeks is not permitted by the Federal Arbitration Act and would contravene the United States' obligations under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It is also incompatible with the "emphatic federal policy in favor of arbitral dispute resolution" that applies with "special force in the field of international commerce." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631(1985). The district court's refusal to stay the arbitration of the dispute between Chevron and Ecuador under the United States-Ecuador Bilateral Investment Treaty should therefore be affirmed.