The Free Trade Agreement between Canada and the Republic of Ecuador comprises twenty-nine chapters and several annexes. This Alert summarizes the provisions with a direct or material impact on the mining sector, including those relating to goods, origin, investment, government procurement, environment, labour, services, and Ecuador’s reservations.

The Agreement will enter into force on the first day of the second month following the last written notification that Ecuador and Canada have completed their internal procedures. Accordingly, the benefits and obligations described herein depend on completion of that process.

 

1. Scope and Entry into Force

The Agreement establishes a free trade area between Canada and Ecuador and seeks to expand trade and investment opportunities through a clear, transparent, and predictable legal framework. For the mining sector, customs facilitation, supply chain resilience, sustainability, responsible business conduct, transparency, and anti-corruption are particularly relevant.

The Agreement recognizes each Party’s regulatory autonomy and right to adopt measures to protect health, safety, the environment, and exhaustible natural resources. It also promotes the effective enforcement of environmental and labour laws and sustainable development.

The Agreement reaffirms the agreements of the World Trade Organization (WTO). Subsidies, anti-dumping, countervailing measures, and global safeguards continue to be governed by those agreements, without prejudice to the specific rules and exceptions of the Agreement.

Each Party must ensure compliance with the Agreement by its authorities. This obligation also extends to public enterprises, state-owned enterprises, and other entities when they exercise delegated governmental authority, such as granting licences, expropriating, or imposing fees.

 

2. Definitions Relevant to Mining

“Measure” includes laws, regulations, procedures, requirements, and practices; “enterprise” includes public and private entities and joint ventures; and an “existing” measure is one in effect on the date of entry into force.

For Ecuador, Indigenous Peoples include Indigenous communities, peoples, and nationalities, the Afro-Ecuadorian people, the Montubio people, and communes recognized under the Constitution.

These definitions are relevant to mining because concessions, permits, licences, contracts, shares, movable and immovable property, and other rights associated with a project may constitute investments; decisions by sectoral authorities constitute measures; and actions by state-owned enterprises exercising delegated governmental authority may be subject to the obligations of the Agreement.

 

3. Trade in Goods and Tariff Commitments

 

Chapter 2 requires national treatment for goods of the other Party. Classification will be made under the Harmonized System, and tariffs on originating goods will be eliminated in accordance with Annex 2-B. Where the applied most-favoured-nation tariff is lower, the lower tariff will apply.

 

The Agreement prohibits conditioning tariff exemptions on performance requirements and restricts prohibitions or quantitative limitations on imports and exports, subject to the GATT exceptions.

 

Import licensing procedures must be transparent and predictable and must be published and notified. If a licence is denied, the applicant may request a written explanation.

 

New or modified export licensing procedures must be published and notified, without preventing export controls or international non-proliferation regimes.

 

 

 

Tariff Elimination Staging

 

Annex 2-B provides for goods that are duty-free upon entry into force and categories with tariff reductions over four, six, eight, ten, or twelve stages; category E is excluded from tariff elimination.

For the mining sector, the tariff schedule provides, among other examples, preferential treatment for certain tyres for mining machinery, lifting equipment for mining, cables used in the oil or mining industries, and safety lamps used in mines. The specific treatment depends on the tariff classification, technical description, rule of origin, and tariff elimination category assigned to each product; accordingly, eligibility should not be determined solely by the product’s commercial name.

 

Relevant Exceptions to Trade in Goods

The disciplines on national treatment and import or export restrictions do not apply to trade in rough diamonds regulated by the Kimberley Process Certification Scheme.

 

4. Rules of Origin Applicable to Minerals, Products, and Equipment

A good will be originating if it is wholly obtained or produced in the territory of one or both Parties, is produced exclusively from originating materials, or satisfies the specific rule in Annex 3-A and the other requirements of Chapter 3.

For the extractive sector, the Agreement expressly provides that a mineral good or other naturally occurring substance extracted or obtained in the territory of one or both Parties is considered wholly obtained. Certain goods obtained from the seabed, ocean floor, or subsoil outside the territory may also qualify where the Party or a person of that Party has the right to exploit them in accordance with international law.

Bilateral accumulation allows goods or materials originating in one Party to be treated as originating in the other when used in production. Rules also apply to fungible goods and indirect materials, including fuels, tools, safety equipment, lubricants, and spare parts.

Accessories, spare parts, and tools classified with a good are considered originating when the principal good is originating and they are not invoiced separately. Transit through third countries does not affect origin if the good remains under customs control and undergoes only permitted operations.

Minimal operations, such as repackaging, applying anti-corrosion coatings, or disassembling a good, do not confer origin. Annex 3-A may require a change in tariff classification, a specific production process, or regional value content.

 

5. Certification, Verification, and Record-Keeping for Origin

Preferential treatment requires a certification of origin. It may cover a single shipment or multiple shipments of identical goods for up to twelve months, will be valid for one year, and may be submitted electronically in English, French, or Spanish.

Minor errors do not automatically invalidate the certification, and at least fifteen working days must be provided to correct defects. Certification will not be required for imports of up to USD 1,000, unless the importation is split to evade the requirement.

Importers, exporters, and producers must retain origin records for at least five years. The authority may verify them through requests, questionnaires, or visits, with an ordinary period of thirty days to respond or consent to a visit.

Before denying preferential treatment, the authority will communicate its preliminary findings and provide at least thirty days to submit information. The benefit may be denied for failure to comply with origin or documentation requirements, insufficient information, or failure to consent to a visit.

The Parties must issue advance rulings on classification, origin, and other customs matters within one hundred and twenty days of a complete application. Decisions will be subject to review, and confidential information must be protected.

 

6. Customs and Trade Facilitation

Chapter 5 promotes electronic publication, advance submission of documents, advance rulings, expedited release, guarantees, express shipments, single windows, and electronic systems—tools that facilitate the import of equipment and inputs and the export of minerals.

Operators will have the right to administrative and judicial review of customs decisions. Confidential commercial information must be protected, and officials must comply with integrity standards.

 

7. Technical Barriers Applicable to Mining Goods

Chapter 7 applies to technical regulations, standards, and conformity assessment. The Parties must consider international standards and equivalence and avoid unnecessary restrictions; procedures must be transparent, non-discriminatory, and proportionate.

Technical regulations with a significant impact on trade will normally allow at least sixty days for comments and six months between publication and the date on which compliance is required, except in urgent circumstances.

For mining projects, these obligations may affect technical requirements applicable to machinery, explosives, electrical equipment, safety equipment, fuels, chemicals, laboratories, certifications, and processed mineral products, without limiting Ecuador’s authority to establish legitimate safety, quality, or environmental protection requirements.

 

8. Emergency Measures and Safeguards

Chapter 8 permits a bilateral safeguard measure when tariff reductions result in imports that cause or threaten to cause serious injury to a domestic industry. The measure may suspend further reductions or temporarily increase the tariff.

A safeguard may not remain in effect for more than three years or be applied more than once to the same good and must be progressively liberalized if it lasts for more than one year.

 

9. Competition and State-Owned Enterprises

Each Party will apply its competition law in a transparent and non-discriminatory manner. Chapter 9 promotes cooperation between authorities, but matters arising under that Chapter may not be submitted to Chapter 27, without prejudice to domestic law and sanctions.

Chapter 10 requires state-owned enterprises and monopolies, when engaging in commercial activities, to act in accordance with commercial considerations and provide non-discriminatory treatment. Regulators must act impartially, and non-commercial assistance must not cause the adverse effects specified in the Agreement.

Each Party will publish and update a list of relevant state-owned enterprises. The obligations are subject to the applicable threshold and to the activities excluded or reserved under Annex IV.

 

10. Government Procurement and Relevance to the Mining Sector

Chapter 11 applies only to covered procurement under Annex 11-A. It requires non-discriminatory treatment, transparency, and the absence of offsets, subject to exceptions including security, health, and protection of life.

Technical specifications must not unjustifiably favour suppliers and may incorporate environmental, social, and sustainability criteria related to the contract.

Limited tendering may be used only in the exceptional circumstances provided for in the Agreement and not to avoid competition or favour domestic suppliers. Contract awards must be published, and records retained for at least three years.

The Parties will maintain integrity measures and mechanisms to exclude or debar suppliers for fraud, corruption, or other serious offences, together with challenge procedures and corrective measures.

From a mining perspective, Canada’s schedules include certain mining equipment, minerals, and services incidental to mining, including drilling, field work, engineering, and technical testing. Ecuador’s schedule includes the National Mining Company (Empresa Nacional Minera – ENAMI EP) as a covered entity, subject to the terms and thresholds of the Annex.

 

11. Environmental Obligations

Chapter 12 covers rules on pollutants, hazardous substances and waste, biodiversity, and climate change mitigation or adaptation.

The Parties must allow investigations into environmental violations, fair proceedings, and appropriate sanctions. They must also maintain assessment procedures for projects with significant effects, aimed at avoiding, minimizing, or mitigating adverse impacts.

The Chapter requires implementation of the Paris Agreement and promotes climate resilience, a circular economy, environmental audits, and reporting, without creating unnecessary barriers to trade.

It also addresses biodiversity, genetic resources, traditional knowledge, and environmental technologies. Cooperation expressly includes the sustainable management of mineral resources.

 

12. Labour Obligations

Chapter 13 protects freedom of association and collective bargaining, requires the elimination of forced and child labour, non-discrimination, safe working conditions, and minimum standards on wages and working hours, including for migrant workers.

Measures relating to supply chains and labour procedures are relevant to contractors, subcontractors, camps, security, transportation, construction, and other mining suppliers.

 

13. Transparency, Anti-Corruption, and Responsible Business Conduct

General rules and decisions relating to the Agreement must be published. To the extent possible, proposed measures will be published in advance, and central government regulations affecting trade or investment will allow at least sixty days for comments.

Administrative proceedings affecting persons, goods, or services of the other Party must provide notice, the legal basis, and an opportunity to present arguments before a decision, where appropriate, together with impartial and independent review.

The Agreement requires sanctions for bribery, complicity, embezzlement, misappropriation, and certain accounting manipulations. Legal entities will be subject to effective, proportionate, and dissuasive sanctions and must prevent false records or unrecorded transactions used for corruption.

The Parties will promote integrity, management of conflicts of interest, codes of conduct, whistleblowing channels, internal controls, audits, and compliance programs proportionate to the size and sector of the enterprise.

Enterprises must comply with applicable laws on human rights, Indigenous Peoples, the environment, and labour. The Parties will promote the OECD Guidelines, the UN Guiding Principles, and disclosure of impacts.

 

14. Investment Protection and Mining Projects

Chapter 15 defines investment broadly to include enterprises, shares, debt instruments, loans with the characteristics of an investment, turnkey, construction, management, production, concession, or revenue-sharing contracts, intellectual property rights, and other tangible or intangible property. A covered investment must be located in the territory of the host Party, be made in accordance with its law, be owned or controlled by an investor of the other Party, and exist on the date of entry into force or be made thereafter.

The definition of investor includes a person that “seeks to make” an investment when it takes concrete actions, such as committing resources to establish a business or applying for a permit or licence.

The obligations of the Agreement apply to measures adopted by the central government, subnational governments, and entities exercising delegated governmental functions. However, the Agreement does not permit claims concerning acts or situations that were fully concluded before its entry into force. The Chapter reaffirms the State’s right to regulate to protect the environment, health, safety, and the rights of Indigenous Peoples, and prohibits relaxing these protections to attract investment.

National treatment and most-favoured-nation treatment are recognized in like circumstances. The minimum standard of treatment is limited to customary international law and includes denial of justice, a fundamental breach of due process, manifest arbitrariness, discrimination on manifestly wrongful grounds, abusive treatment, and failure to provide physical protection. A breach of domestic law does not, by itself, establish a violation.

Direct or indirect expropriation is permitted only for a public purpose, with due process, on a non-discriminatory basis, and upon payment of compensation equivalent to fair market value, paid without delay, with interest, and freely transferable. A non-discriminatory measure adopted in good faith to protect legitimate public welfare objectives, such as health, safety, or the environment, does not constitute expropriation.

Subject to exceptions, the Agreement guarantees the free transfer of capital, dividends, profits, interest, royalties, fees, proceeds from sale or liquidation, contractual payments, and remuneration of foreign personnel. Transfers may be restricted through the equitable and non-discriminatory application of certain domestic laws.

Certain performance requirements are prohibited, including mandatory export or domestic content percentages, mandatory preferences for local goods or services, and forced transfers of technology. However, the State may condition advantages on locating production, supplying services, training or employing workers, constructing facilities, or conducting research and development, and exceptions apply to government procurement and legitimate public policy objectives.

The Chapter does not permit a specific nationality requirement for senior management, although up to a majority of the board of directors may be required to be nationals or residents, provided this does not materially impair the investor’s control. Investors must comply with the law of the host State, and meaningful dialogue with communities and Indigenous Peoples is encouraged.

 

15. Investor–State Arbitration

The Agreement establishes an investor–State dispute settlement mechanism for certain obligations under Chapter 15. Excluded matters include, among others, direct claims based on non-derogation, performance requirements, board diversity, and responsible business conduct, as well as purely contractual or commercial disputes not governed by the Chapter.

Before arbitration, the investor must request consultations and identify the investment, the measure at issue, the provisions allegedly breached, the grounds for the claim, and the relief sought. The request must be submitted within three years from the date on which the investor knew or should have known of the breach and the loss; meetings must be held within ninety days, unless otherwise agreed.

The claim may be submitted to arbitration after one hundred and eighty days from the request for consultations and will require consent and a written waiver of the right to initiate or continue other proceedings concerning the same measure, except for certain extraordinary proceedings that do not seek monetary compensation.

Tribunals will ordinarily consist of three independent arbitrators. Proceedings will be governed by transparency rules, and hearings will be public except to the extent necessary to protect confidential information.

Remedies are limited to monetary damages and interest or restitution of property, with the State having the option to pay damages instead. Punitive damages are not permitted and, in principle, the unsuccessful party will bear the costs.

 

16. Services, Authorizations, Finance, and Business Mobility

 Chapter 16 regulates the cross-border supply of services and provides for national treatment, most-favoured-nation treatment, and market access. It permits legitimate registration, authorization, certification, or legal establishment requirements, provided they are not used to circumvent the obligations. Reservations are set out in Annexes I and II.

Chapter 17 requires authorization requirements and procedures to be based on objective and transparent criteria, to be no more burdensome than necessary, and not to covertly restrict the supply of the service. Rules on authorization fees do not apply to royalties, payments for the use of natural resources, payments for auctions or tendering to award concessions, or mandatory contributions to universal services, as these do not constitute administrative authorization fees.

Chapter 19 facilitates the temporary entry of business visitors, investors, professionals, and intra-corporate transferees, without creating rights of permanent residence or general access to the labour market. Ecuador provides, among other categories, for stays of up to one hundred and eighty days within a twelve-month period for business visitors and up to two years for certain intra-corporate transferees, subject to the applicable conditions and grounds for refusal.

 

17. Digital Trade and Mining Operations

 

Chapters 20 and 21 facilitate intra-corporate communications and cross-border information flows, subject to legitimate security, confidentiality, and data protection measures.

The Agreement recognizes electronic documents, contracts, and signatures and requires a data protection framework based on purpose limitation, security, transparency, and accountability.

Authorities must protect personal data provided by enterprises against loss, theft, or unauthorized access.

Cross-border information flows are permitted and, as a general rule, server localization or source code transfer may not be required.

 

18. Indigenous Peoples, Communities, and Suppliers

Chapter 22 promotes gender equality and women’s participation through cooperation and training, without weakening protections for trade purposes.

Chapter 23 requires information for small and medium-sized enterprises (SMEs) on tariffs, origin, customs, procurement, and financing, which is useful for mining suppliers. It is not subject to Chapter 27.

Chapter 24 promotes economic participation, traditional knowledge, and dialogue with Indigenous Peoples without diminishing their rights. It is also not subject to the general dispute settlement mechanism.

19. Good Regulatory Practices and Implementation

Chapter 25 promotes transparent, predictable, and coordinated regulations and seeks to avoid duplication among authorities.

Proposed measures with a significant impact on trade should be subject to comments for at least sixty days. Regulations should be clear, public, and reviewable. This Chapter is not subject to Chapter 27.

 

20. State-to-State Dispute Settlement

Chapter 27 covers disputes concerning interpretation, application, or non-compliance. If the matter is also covered by the WTO or another treaty, the complaining Party may choose the forum in accordance with the applicable rules.

Consultations are formal exchanges between governments to seek a solution. They will commence within thirty days, or fifteen days in urgent matters; if they do not resolve the matter, a panel may be requested.

The panel will consist of three independent members and will issue interim and final reports in accordance with the timeframes set out in the Chapter.

If non-compliance persists, compensation may be agreed and equivalent benefits may be temporarily suspended until compliance or a satisfactory solution is achieved.

The Agreement does not create a domestic right of action against the other Party, and certain chapters exclude this mechanism.

 

21. General Exceptions

Chapter 28 permits, subject to its requirements, measures to protect health, the environment, exhaustible natural resources, the climate, and national security.

The Agreement generally does not apply to taxation measures. Tax treaties prevail, and disputes concerning taxation measures and expropriation must first be referred to the designated authorities.

Temporary restrictions on payments and transfers are permitted in cases of serious difficulties if they are necessary, non-discriminatory, and subject to notification and review.

Ecuador may fulfil its legal obligations to Indigenous Peoples without arbitrary discrimination. The Agreement does not require disclosure of confidential information where disclosure is prohibited by law, would prejudice the public interest, or would affect legitimate commercial interests.

 

22. Ecuador-Specific Reservations Affecting Mining

Annex I permits the maintenance or renewal of expressly identified non-conforming measures and allows them to be amended only if the amendment does not make them less consistent with the Agreement than they were immediately before the amendment.

Ecuador maintains the prohibition on foreign persons acquiring, by any title, land or concessions within protected areas, as well as on foreign persons possessing, acquiring, or being granted land in security zones.

In strategic sectors, Ecuador may give preference to public enterprises, delegate management to mixed-economy enterprises, and require at least 51% State ownership. The reservation includes non-renewable natural resources and confirms that the Agreement does not eliminate the strategic status of mining.

In artisanal mining, natural or legal persons may not have foreign companies as partners or shareholders. The reservation also reproduces the production limits applicable to metallic minerals, non-metallic minerals, and construction materials.

Companies established to carry out engineering or architectural works must employ Ecuadorian engineers or architects representing at least 80% of their qualified employees or specialists, except employers with up to ten employees. The Agreement does not list the works covered; its application to mining projects will depend on the activities performed, Ecuadorian law, and the exclusion relating to certain commitments under the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO).

Annex II preserves regulatory space concerning pipeline transportation, Indigenous Peoples, Galápagos, and the manufacture, storage, transportation, import, export, and possession of explosives.

Annex IV preserves certain non-conforming activities and non-commercial assistance by Ecuadorian state-owned enterprises.

 

23. Sanctions, Remedies, and Legal Consequences

The Agreement does not establish direct fines for mining companies. Violations will be sanctioned under domestic law, with effective and, depending on the subject matter, proportionate and dissuasive sanctions.

In matters of origin and customs, preferences may be denied and penalties imposed; in procurement, suppliers may be excluded; and in environmental, labour, and anti-corruption matters, the corresponding remedies and liabilities may apply.

State non-compliance may result in consultations, panels, compensation, or suspension of benefits; in investment matters, damages, interest, restitution, and costs may be awarded, but not punitive damages.

 

24. Transitional and Final Provisions

The principal transitional rules include the tariff schedules, certification of origin by the importer, safeguards, and special timeframes relating to reservations and government procuremen.

The Annexes form an integral part of the Agreement, which will remain in force indefinitely unless terminated upon six months’ notice. The English, French, and Spanish texts are equally authentic.

 

For further information, please do not hesitate to contact us.

This bulletin is  a summary of legal developments of interest and therefore should not be construed as legal advice. Should you have any questions, please contact the AVL team.