The Right to Regulate in International Investment Law 9781472561695

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For Louis

Acknowledgements

The author wishes to thank Joachim Pohl, Kimmo Sinivuori and André von Walter for an introduction to the fascinating topic that is international investment law, one December Paris evening a few years ago. Thanks are due to Lars Markert, whose article ‘The Crucial Question of Future Investment Treaties: Balancing Investors’ Rights and Regulatory Interests of Host States’ published in the European Yearbook of International Economic Law 2011, Special Issue: International Investment Law and EU Law has been the inspiration for this work and who suggested the title. Particular thanks for their comments on drafts or other contribution are due to Bertram Boie, Tillmann Braun, James Crawford, Tuur Elzinga, Katja Gehne, Jörn Griebel, Nikos Lavranos, August Reinisch, Jörg Weber and Todd Weiler. The author would also like to thank Gerd Morgenthaler for his comments on an early draft and for the Zweitgutachten. Last but certainly not least, the author wishes to thank Marc Bungenberg, without whose valuable moral and academic support this work would not have been possible. Paris, November 2013

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List of principal abbreviations

AANZFTA ACDI AFDI AFRI AIA AJIL Arb Int’l ASEAN ASEAN CIA AUSFTA Austrian Rev Int’l & Eur L AAYB BIT BLEU BTW BYBIL CECA CEPA CETA CFIUS CFREU CJEU CJTL COMESA COMESA CIA Cornell Int’l L J CSR DTT EC Treaty ECHR ECtHR

ASEAN-Australia-New Zealand FTA Annuaire de la commission du droit international Annuaire français de droit international Annuaire français de relations internationales Framework Agreement on the ASEAN Investment Area American Journal of International Law Arbitration International Association of South-East Asian Nations ASEAN Comprehensive Investment Agreement Australia-US Free Trade Agreement Austrian Review of International and European Law Austrian Yearbook on International Arbitration Bilateral Investment Treaty Belgium-Luxembourg Economic Union Beiträge zum Transnationalen Wirtschaftsrecht British Yearbook of International Law Comprehensive Economic Cooperation Agreement Comprehensive Economic Partnership Agreement EU-Canada Comprehensive Economic and Trade Agreement Committee on Foreign Investment in the United States Charter of Fundamental Rights of the European Union Court of Justice of the European Union Columbia Journal of Transnational Law Common Market for Eastern and Southern Africa Investment Agreement for the COMESA Common Investment Area Cornell International Law Journal Corporate Social Responsibility Double Taxation Treaty Treaty Establishing the European Community European Convention on Human Rights European Court of Human Rights

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List of principal abbreviations EFTA EIA EJIL EPA EU EUIA Eur Bus L Rev EuZW EYIEL FCN FDI FET Fordham Int’l L J FTA FTC GAR GATS GATT Harv Hum Rts J Harv Int’l L J Heidelberg J Int’l L ICC ICLQ ICSID ICSID Rev IIA ILC ILC Articles IMF Int’l L FORUM D Int’l Int’l L & Pol ISDS ITN J Int’l Arb JDI JIDS

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European Free Trade Association Economic Integration Agreement European Journal of International Law Economic Partnership Agreement European Union European Union Investment Agreements European Business Law Review Europäische Zeitschrift für Wirtschaftsrecht European Yearbook of International Economic Law Friendship, Commerce and Navigation (Treaty) Foreign Direct Investment Fair and Equitable Treatment Fordham International Law Journal Free Trade Agreement NAFTA Free Trade Commission Global Arbitration Review General Agreement on Trade in Services General Agreement on Tariffs and Trade Harvard Human Rights Journal Harvard International Law Journal Heidelberg Journal of International Law International Chamber of Commerce International & Comparative Law Quarterly International Centre for Settlement of Investment Disputes ICSID Review – Foreign Investment Law Journal International Investment Agreement International Law Commission Articles on Responsibility of States for Internationally Wrongful Acts International Monetary Fund International Law FORUM du droit international International Law and Politics Investor-State Dispute Settlement Investment Treaty News Journal of International Arbitration Journal du droit international Journal of International Dispute Settlement

List of principal abbreviations JIEL JWI&T Leiden J Int’l L LCIA MAI Max Planck YBUNL MFN Minn J Int’l L MJIL NAFTA NGO Nordic J Int’l L NPM NT NYU Envtl L J NYU J Int’l L & Pol OECD RBDI RDAI RGD RGDIP REIO RIW SAFTA SFDI SWF TDM TEU TTIP TFEU TPA TPP TPPA TRIMs TRIPS U Miami IALR

Journal of International Economic Law Journal of World Investment & Trade Leiden Journal of International Law London Court of International Arbitration OECD Multilateral Agreement on Investment Max Planck Yearbook of United Nations Law Most Favoured Nation Minnesota Journal of International Law Michigan Journal of International Law North American Free Trade Agreement Non-Governmental Organisation Nordic Journal of International Law Non-Precluded Measures National Treatment New York University Environmental Law Journal New York University Journal of International Law and Politics Organisation for Economic Co-operation and Development Revue belge de droit international Revue de droit des affaires internationales Revue générale de droit Revue générale de droit international public Regional Economic Integration Organisation Recht der Internationalen Wirtschaft Australia-Singapore Free Trade Agreement Société française pour le droit international Sovereign Wealth Fund Transnational Dispute Management Treaty on European Union EU-US Transatlantic Trade and Investment Partnership Treaty on the Functioning of the European Union Trade Promotion Agreement Trans-Pacific Partnership Trans-Pacific Partnership Agreement Trade-Related Investment Measures Trade-Related Aspects of Intellectual Property Rights University of Miami Inter-American Law Review

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List of principal abbreviations U Pa J Int’l Econ UN UNCITRAL UNCTAD UNCTAD IIA Series UNESCO UNSRSG US-DR-CAFTA Va J Int’l L VCLT VJTL WAMR WTO YB on Int’l Inv L & Pol YBILC

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University of Pennsylvania Journal of International Economic Law United Nations United Nations Commission on International Trade Law United Nations Conference on Trade and Development UNCTAD Series on Issues in International Investment Agreements United Nations Educational, Scientific and Cultural Organization United Nations Special Representative of the SecretaryGeneral US-Dominican Republic-Central America Free Trade Agreement Virginia Journal of International Law Vienna Convention on the Law of Treaties Vanderbilt Journal of Transnational Law World Arbitration and Mediation Review World Trade Organisation Yearbook on International Investment Law & Policy Yearbook of the International Law Commission

I. Introduction

Since the conclusion of the first bilateral investment treaty (BIT) between Germany and Pakistan in 1959, investment promotion and protection have been a priority of international investment law and the raison d’être of international investment agreements (IIAs)1. States have calibrated their efforts with a view to attracting foreign investment and protecting their investors abroad; and, in doing so, they have significantly confined their policy space. The pursuit of regulatory interests in nationally sensitive areas, such as essential security and the public order, human rights, sustainable economic growth, environmental protection, social and labour standards, cultural policy and the capacity to respond to situations of economic emergencies, has been circumscribed in order to give way to investment protection, enshrined in an ever-increasing number of international investment agreements2. Against this backdrop the right to regulate has gradually come to the spotlight as the focus of increased interest, with states starting to look at ways in which to safeguard their regulatory power and guide – and delimit – the interpretative freedom of arbitral tribunals by addressing their right to pursue specific public policy goals3.

1 Newcombe, A. and Paradell, L. (2009), Law and Practice of Investment Treaties, Alphen aan den Rijn: Kluwer Law International, p. 122 et seq.; Salacuse, J. W. (2009), The Law of Investment Treaties, NY: OUP, p. 109 et seq.; Joubin-Bret, A., Rey, M.E. and Weber, J. (2011), International Investment Law and Development, in Cordonier Segger, M.-C., Gehring, M. W. and Newcombe, A. (eds), Sustainable Development in World Investment Law, Alphen aan den Rijn: Kluwer Law International, p. 15. The term ‘international investment agreement’ (IIA) is employed in a broad sense to comprise not only international investment treaties but also investment protection chapters in more comprehensive treaties. 2 UNCTAD (2011a), World Investment Report 2011, NY & Geneva: UN, p. 100 et seq. 3 See OECD (2005), Novel Features in OECD Countries’ Recent Investment Agreements: An Overview. Document published on the occasion of the 12 December 2005 ICSID, OECD and UNCTAD Symposium: Making the Most of International Investment Agreements: A Common Agenda, Paris: OECD, paras 10-11, stating this introduction of ‘more public interest safeguards’ already in 2005. See further Titi, C. (2013a), The Arbitrator as a Lawmaker: Jurisgenerative Processes in Investment Arbitration, JWI&T 14 (5), p. 843 et seq.

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I. Introduction

This rise in prominence of the right to regulate is not only due to a perceived lack of policy space and the resultant – so-called – regulatory chill4. The system governed by international investment law is one in constant dynamic evolution5. A confluence of factors, among which novel features of this shifting landscape, have in the aggregate conduced to the right to regulate turning into a veritable cornerstone of investment negotiations and constituting today a major dilemma of a make-or-break balance in international investment law6. The ascent of the South as a source of investment7 and the related blurring of the line between capital exporters and capital importers8 (remarkably, FDI inflows to the developed and to the developing world

4 On regulatory chill, see Markert, L. (2011), The Crucial Question of Future Investment Treaties: Balancing Investors’ Rights and Regulatory Interests of Host States, in Bungenberg, M., Griebel, J. and Hindelang, S. (eds), EYIEL 2011, Special Issue: International Investment Law and EU Law, Heidelberg: Springer, p.146 and passim; Tienhaara, K. (2011), Regulatory Chill and the Threat of Arbitration, in Brown, C. and Miles, K. (eds), Evolution in Investment Treaty Law and Arbitration, Cambridge: CUP. 5 Alvarez, J. E. and Sauvant, K. P. (eds) (2011), The Evolving International Investment Regime: Expectations, Realities, Options, Oxford Scholarship Online; also UNCTAD (2012a), World Investment Report 2012, NY & Geneva: UN, p. 132, 162; UNCTAD (2007a), Development implications of international investment agreements, IIA Monitor No. 2 (2007), NY & Geneva: UN, p. 2; Bungenberg, M. and Titi, C. (2013a), Developments in International Investment Law, in Herrmann, C., Krajewski, M. and Terchechte, J. P. (eds), EYIEL 2013, Berlin Heidelberg: Springer, p. 441. See further Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 20. 6 See also generally Walter, A. von (2011), Balancing Investors’ and Host States’Rights – What Alternatives for Treaty-makers? in Bungenberg, M., Griebel, J. and Hindelang, S. (eds), EYIEL 2011, Special Issue: International Investment Law and EU Law, Heidelberg: Springer. 7 UNCTAD (2009a), The Protection of National Security in IIAs, UNCTAD Series on International Investment Policies for Development, UNCTAD/DIAE/IA/2008/5, NY & Geneva: UN, p. 17; Sauvant, K. P. (2011), The Regulatory Framework for Investment: Where are we Headed? in Ramamurti, R. and Hashai, N. (eds), The Future of Foreign Direct Investment and the Multinational Enterprise (Research in Global Strategic Management, Volume 15), Bingley: Emerald Group Publishing, p. 415-417; Economou, P. and Sauvant, K. P. (2013), FDI Trends in 2010-2011 and the Challenge of Investment Policies for Outward Foreign Direct Investment, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2011-2012, NY: OUP, p. 13. Cf. UNCTAD (2012a), op cit., p. 5; Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 19, 21-22. 8 Sauvant, K. P. (2011), op cit., p. 425; Reisman, W. M. (2012), International Investment Law and Arbitration amidst Global Change. Arbitration Academy 2012 Session, Opening Lecture of 2 July 2012 (unpublished copy); also Joubin-Bret, A., Rey, M.E. and Weber, J. (2011), op cit., p. 19.

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I. Introduction

have recently reached broadly coterminous levels9, while the EU and the US, traditional capital exporters, remain by far the most significant FDI destination economies10) are two initial factors that challenge the typical role that investment treaties have up until now been purported to play; their very nearly one-sided offer of protection to investors from the industrialised world for their overseas ventures in the developing world11 ceases to be the default mode12. The apparent convergence between capital exporters and capital importers further acts upon the distinction between the doctrinal positions traditionally advocated by them, namely, the Hull13 and the acquired rights14 doctrines – customarily finding their proponents among capital-exporting states – and the rhetoric of the Calvo doctrine15 and the New International Economic Order16 – strongholds of the capital-importing world17.

9 For example, according to UNCTAD, FDI inflows to developed economies reached US $748 billion in 2011, while FDI inflows to developing and transition economies in the same year was at US $777 billion. UNCTAD (2012a), op cit., p. 2, 61, also generally p. 39-63. 10 See UNCTAD (2012a), op cit., p. 39-63 (60). 11 Newcombe, A. (2007), Sustainable Development and Investment Treaty Law, JWI&T 8, p. 363; Titi, C. (2013a), op cit., p. 845. 12 See further Sauvant, K. P. (2011), op cit., p. 415-416, 425. Cf. Sornarajah, M. (2012), Starting anew in international investment law, Columbia FDI Perspectives 74, 16 July 2012; Robert-Cuendet, S. (2010), Droits de l’investisseur étranger et protection de l’environnement : Contribution à l’analyse de l’expropriation indirecte, Leiden Boston: Martinus Nijhoff, p. 484. 13 On the Hull doctrine, see OECD (2004a), “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, Working Papers on International Investment, No. 2004/4, Paris: OECD, p. 2, ft. 1; Newcombe, A. and Paradell, L. (2009), op cit., p. 18; Sornarajah, M. (2011), The International Law on Foreign Investment, 3rd edn, NY: CUP, p. 414 et seq.; Kuokkanen, T. (2002), International Law and the Environment: Variations on a Theme, The Hague: Kluwer Law International, p. 180 et seq. 14 See Sornarajah, M. (2011), op cit., p. 419-420. 15 See Newcombe, A. and Paradell, L. (2009), op cit., p. 13-14; Salacuse, J. W. (2009), op cit., p. 65 et seq. 16 See Sornarajah, M. (2011), op cit., p. 237 et seq., Newcombe, A. and Paradell, L. (2009), op cit., p. 31-32. See also UN General Assembly (1974), Resolution 3201 (S-VI), Declaration on the Establishment of a New International Economic Order, A/RES/S-6/3201, 1 May 1974. 17 Walter, A. von (2011), op cit., p. 141; see also Alvarez, J. E. (2011a), The Public International Law Regime Governing International Investment, Hague Academy of International Law, p. 166-167. See further Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 22.

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I. Introduction

Another recent development that impacts system dynamics is the negotiation of comprehensive treaties with investment chapters between developed economies; examples range from the North American Free Trade Agreement (NAFTA), a precursor of the trend, and the Australia-US Free Trade Agreement (AUSFTA) to the currently under negotiation Trans-Pacific Partnership Agreement (TPPA)18 and, notably, the EU-Canada Comprehensive Economic and Trade Agreement (CETA)19 and the EU-US Transatlantic Trade and Investment Partnership (TTIP)20. This new development contributes to altering the balance of powers and brings to the table considerations alien to traditional investment negotiations. Systemic changes such as those just portrayed explain the rise in popularity of the right to regulate, but it is one additional aspect that speaks volumes as to the cardinal role the former has to perform. The right to regulate drives into the heart of the international system of investment protection, since a treaty’s sensitivity to it determines the availability of its protections to foreign investors but also, quite significantly, because its absence appears to induce a scaledown or dilution of treaty protections in subsequent investment policymaking21. The right to regulate is called to function as the safety valve instilling some elasticity into the system and bringing about a degree of balance22. To paraphrase an argument put forward by Roberto Ago, Special Rapporteur to the International Law Commission (ILC), in favour of the necessity defence more than 30 years ago, ‘finding a closed door, [the right to regulate] would enter by the window’23.

18 On the Trans-Pacific Partnership Agreement, see Chapter III, Developments at the plurilateral level. 19 See http://trade.ec.europa.eu/doclib/press/index.cfm?id=973. 20 On the status of the TTIP negotiations, see http://ec.europa.eu/trade/policy/in-focus/ ttip/, accessed August 2013. On these and other IIA negotiations involving the EU, see Bungenberg, M. and Titi, C. (2014), Developments in International Investment Law, in Herrmann, C., Krajewski, M. and Terchechte, J. P. (eds), EYIEL 2014 (forthcoming). 21 Brower, C. H., II (2009), Obstacles and Pathways to Consideration of the Public Interest in Investment Treaty Disputes, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2008-2009, NY: OUP, p. 357, with citations; Markert, L. (2011), op cit., p. 146. See further Blackaby, N. (2004), Public Interest and Investment Treaty Arbitration, TDM 1 (1), p. 3, focusing on access to dispute settlement. 22 See Chapter IV, Policy space as a remedy to a systemic imbalance. 23 Ago, R. (1980), Additif au huitième rapport sur la responsabilité des États – Le fait internationalement illicite de l’État, source de responsabilité internationale, A/CN. 4/318/Add.5-7, ACDI II (1), para. 80. See also Chapter X, Necessity.

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I. Introduction

Because, if investment protection remains the focal point of the international investment regime, currently unfolding developments belie the notion that it is the be-all and end-all of the entire system. The recent denunciations of the International Centre for Settlement of Disputes (ICSID) Convention by Bolivia, Ecuador and Venezuela, termination of a number of BITs by Ecuador and a few other – principally Latin American – countries24, Russia’s termination of its provisional application of the Energy Charter Treaty (ECT)25, South Africa’s anticipated withdrawal from a number of first generation BITs26 and speculation around Argentina’s possible exit from ICSID27 reveal a ‘reawakened’ quest for regulatory freedom, and, as a corollary, involve a serious weakening of the standards of protection28. The same is true as regards the adoption of domestic legislation inimical to investment

24 UNCTAD (2010a), Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims, IIA Issues Note No. 2, December 2010 www.unctad.org/diae. See further Titi, C. (2014a), Investment Arbitration in Latin America: The Uncertain Veracity of Preconceived Ideas, Arb Int’l 31 (2) (forthcoming); Ben Hamida, W. (2011), La dénonciation de la Convention de Washington : un adieu ou un simple au revoir, in Horchani, F. (ed.), Le CIRDI – 45 ans après. Bilan d’un système, Paris: A. Pedone. On Venezuela’s withdrawal from the ICSID Convention in January 2012, see Venezuela Submits a Notice under Article 71 of the ICSID Convention, ICSID News Release, 26 January 2012. On Ecuador’s relationship with investment treaties and arbitration, see Fach Gόmez, K. (2012), Ecuador’s Attainment of the Sumak Kawsay and the Role Assigned to International Arbitration, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2010-2011, NY: OUP; Nowrot, K. (2010), International Investment Law and the Republic of Ecuador: From Arbitral Bilateralism to Judicial Regionalism, BTW 96. 25 See the announcement on the Energy Charter’s website http://www.encharter.org/ index.php?id=414. 26 News in Brief: South Africa begins withdrawing from EU-member BITs, ITN, 30 October 2012; Speech of the Minister of Trade and Industry, Dr Rob Davies, at the Discussion of UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD) in Geneva, Switzerland, 25 September 2012 http://www.thedti.gov.za/ editspeeches.jsp?id=2506. For a theoretical underpinning, see Government of South Africa, Department of Trade and Industry (2009), Bilateral Investment Treaty Policy Framework Review, Government Position Paper, Pretoria, June 2009. 27 Perry, S. (2013), Is Argentina about to leave ICSID? GAR 25 January 2013. See further Titi, C. (2014a), op cit. 28 Markert, L. (2011), op cit., p.146-7.

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I. Introduction

protection, as attested by Ecuador’s 2008 constitutional reform29 and ensuing jurisprudence of that state’s Constitutional Court deeming a number of arbitration clauses in Ecuadorian BITs anti-constitutional30; or, to cite another example, Belizean legislation interfering with investment dispute settlement by imposing draconian penalties on those disregarding Belizean court injunctions, leading to a staying of proceedings in three recent cases31. Argentina, the state having faced the highest number of claims in international arbitration32, is just about now reaching post-award settlements with claimant investors who won Pyrrhic victories in arbitral awards that disregarded the country’s right to regulate and were found to contain errors of law33 – and as a consequence did not receive any compensation for years. Yet the trend is not restricted to the developing world, nor even a group of Latin American countries ‘rediscovering the Calvo doctrine’34, but it is mirrored in a re-evaluation of standard formulation in North American IIAs – aptly exemplified by the Canadian and in particular the US Model BIT35

29 See Jijón-Letort, R. and Marchán, J. M. (2012), National and International Arbitration in Ecuador. The Arbitration Review of the Americas 2012, GAR/Pérez Bustamante & Ponce, p. 42-43; Nowrot, K. (2010), op cit.; UNCTAD (2010b), World Investment Report 2010, NY & Geneva: UN, p. 85-86. The text of Ecuador’s 2008 Constitution is available through: http://pdba.georgetown.edu/Constitutions/Ecuador/ecuador08.html. 30 Jijón-Letort, R. and Marchán, J. M. (2012), op cit., p. 43; UNCTAD (2010a), op cit., p. 1, ft. 3; see also UNCTAD (2010b), op cit., p. 85-86. On this issue, see further Titi, C. (2014a), op cit. 31 See Peterson, L. E. (2012a), Belize manages to stall trio of treaty arbitrations by foreign investors, IA Reporter 5 (1); see also Peterson, L. E. (2012b), Threat of severe sanctions under Belize law exerting chill on debt-collection efforts of foreign investors in telecoms and airport projects, IA Reporter 5 (1) and Peterson, L. E. (2012c), U.S. Appeals Court rules that lower court should not have stayed award enforcement proceedings in Belize dispute, IA Reporter 5 (2). The three cases are: Dunkeld International Investment Ltd. v. Belize (I), UNCITRAL, British Caribbean Bank Limited v. Belize, UNCITRAL and Dunkeld International Investment Ltd. v. Belize (II), UNCITRAL. 32 UNCTAD (2013a), Recent Developments in Investor-State Dispute Settlement (ISDS), IIA Issues Note No. 1 (Revised) May 2013, www.unctad.org/diae, p. 29, Annex 2. 33 E.g. CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, Decision on Annulment, 25 September 2007 (hereinafter CMS Annulment), paras 45, 130, 146, 148. See Titi, C. (2014a), op cit. 34 Markert, L. (2011), op cit, p. 147. 35 See Chapter III, Some developments at the bilateral level, incl. literature citations. See further Chapter IV, Arbitration as a perceived threat to state regulatory freedom.

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–, the elaboration of the nascent EU investment policy36 and beyond. Recent model BIT reviews, including the one that gave birth to the 2012 US Model BIT, have debated policy space37, in one case with the express intent to ‘assess the advantages and disadvantages’ of international investment agreements38. In Australia, a state that had not until recently been involved in investor-state arbitration39, the Gillard Government has taken the decision to discontinue an essential investor protection mechanism in its future agreements by excluding investor-state arbitration40. National investment legislation has also in the industrialised world introduced restrictions41, such as in the US mergers and acquisitions’ national security review process by the Committee on Foreign Investment in the United States (CFIUS)42 and in the revised Investment Canada Act 43 on review of proposed investment on national security grounds44. Concurrently, negotiations in both hemispheres,

36 See Chapter III, Developments at the collective level. 37 For example, see Muchlinski, P. (2010), Trends in International Investment Agreements, 2008/2009: Review of the Model Bilateral Investment Treaties of Norway, South Africa, and the United States, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2009-2010, NY: OUP; BIT Review: Written Comments Concerning the Administration's Review of the U.S. Model Bilateral Investment Treaty (Docket ID: USTR-2009-0019), TDM 7 (1); Alvarez, J. E. (2011a), op cit., p. 340. See also UNCTAD (2010b), op cit., p. 85. 38 Government of Norway (2007), Comments on the Model for Future Investment Agreements (English Translation, 19 December 2007). http://www.uio.no/studier/ emner/jus/jus/JUR5850/tekster/norway_draft_model_bit_comments.pdf, p. 3. 39 The 2011-registered Philip Morris v. Australia case is the first investment arbitration to be filed against Australia. Philip Morris Asia Limited v. Australia, UNCITRAL, PCA Case No. 2012-12, Notice of Arbitration, 21 November 2011 (hereinafter Philip Morris v. Australia). 40 See Chapter II, Doing away with investor-state dispute settlement. 41 The overall trend however remains one of liberalisation, see UNCTAD (2012a), op cit., p. 76 et seq. 42 On CFIUS, see http://www.trade.gov/mas/ian/cfius/. 43 R.S.C., 1985, c. 28 (1st Supp.), Consolidated version of 10 December 2012, last amended on 29 June 2012, published by the Canadian Ministry of Justice at http:// laws-lois.justice.gc.ca. 44 Mendenhall, J. (2013). The Evolution of the Essential Security Exception in US Trade and Investment Agremeents, in Sauvant, K. P., Sachs, L. E. and Schmit Jongbloed, W. (eds), Sovereign Investment: Concerns and Policy Reactions, NY: OUP, p. 344; Plotkin, M. E. And Fagan, D. N. (2009), The revised national security review process for FDI in the US, Columbia FDI Perspectives 2, 7 January 2009;

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I. Introduction

and between the two, underscore the role of the right to regulate: so much in the context of the Trans-Pacific Partnership Agreement45 as in the deliberations that surround the negotiation of the first EU-wide investment chapters in free trade agreements (FTAs)46, an emphasis is placed on ‘the right to protect the public capacity to regulate’47 ‘in the public interest48; an emphasis that will doubtless have an impact on the shape of treaties to come. Finally, quite apart from these developments, the significance of the right to regulate is no less revealed in the fact that, although not called by its proper name, from the 1960s until the present time it has formed an apple of discord in negotiations at the multilateral level, the opposition between advocates of maximum investment protection and those in favour of host state policy space repeatedly undermining their successful outcome49. The miscarried Multilateral Agreement on Investment (MAI), negotiated under the auspices of the OECD in the 1990s, will be given a particular mention throughout the book. So what is this right to regulate and how has it come to be? The emergent state of affairs invites a cross-cutting questions, such as whether these de-

45 46 47 48

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Bhattacharjee, S. (2009), National security with a Canadian twist: the Investment Canada Act and the new national security review test, Columbia FDI Perspectives 10, 30 July 2009; see also Alvarez, J. E. (2010a), Why Are We “Re-Calibrating” Our Investment Treaties? WAMR 4 (2), p. 146. On national security restrictions imposed by domestic legislation, see further: Muchlinski, P. (2009a), Trends in International Investment Agreements: Balancing Investor Rights and the Right to Regulate – The Issue of National Security, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2008-2009, NY: OUP, p. 50-51; Sauvant, K. P. (2009), Driving and Countervailing Forces: A Rebalancing of National FDI Policies, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2008-2009, NY: OUP, p. 244 et seq.; UNCTAD (2012a), op cit., p. 79-80; OECD and UNCTAD (2012), Seventh Report on G20 Investment Measures (7 October 2011 and 3 May 2012) http://unctad.org/en/PublicationsLibrary/unctad_oecd2012d7_en.pdf, p. 5-6. See Chapter III, Developments at the plurilateral level. See Chapter III, Developments at the collective level. European Parliament (2011a), Resolution of 6 April 2011 on the future European international investment policy (2010/2203(INI)), P7_TA(2011)0141, para. 6, see also paras 23-26. Office of the United States Trade Representative, Outlines of the Trans-Pacific Partnership Agreement: Enhancing Trade and Investment, Supporting Jobs, Economic Growth and Development, November 2011 http://www.ustr.gov/about-us/press-office/fact-sheets/2011/november/outlines-trans-pacific-partnership-agreement, under the section: Legal Texts, Investment. Walter, A. von (2011), op cit., p. 141.

I. Introduction

velopments are the haphazard symptoms of a passing trend or they point to underlying issues of systemic significance that, if left unchecked, threaten to destabilise the edifice of international investment law and risk nullifying investment protection. Does the new emphasis on the role of state constitute an abandonment of investment protection or is it a legitimate attempt at reconciliation between conflicting interests in a system largely perceived as favourable to investors at the expense of states? More particularly, can these changes be understood as elements of an evolution of the system that potentially offer an ‘opportunity for a more coherent, balanced and effective international investment regime’50? Achieving a viable balance51 between, in particular, private and public interests, combining ‘robust investor protections with adequate allowances for bona fide public interest measures’52 becomes a major policy challenge53, and one that the right to regulate endeavours to address. The book seeks to explore the right to regulate within the realm of international investment law. Accordingly, it puts this incipient legal concept squarely on the table and, at the same time, encourages a particular conceptual approach to its examination, one that shifts the emphasis from agnosticism on ‘whether’ and ‘why’ to questions of ‘how’. Conceding the right to regulate’s presence in – foremost new generation – IIAs, a fact often overlooked in relevant legal discourse54, the book engages briefly in reflections on rationales (the ‘whether’ and ‘why’), in order to rapidly veer its focus towards the state of play of the right to regulate de lege lata and in unravelling trends (the ‘how’). Only by delving into this state of affairs is it possible to determine the significance and implications of particular manifestations of

50 UNCTAD (2010b), op cit., p. 90, 95, also p. 75 and passim. 51 Walter, A. von (2011), op cit., p. 141. 52 Ruggie, J. (2010), Business and Human Rights: Further steps towards the operationalization of the “protect, respect and remedy” framework, Report of the United Nations Special Representative of the Secretary-General (hereinafter UNSRSG) on the issue of human rights and transnational corporations and other business enterprises, A/HRC/14/27, 9 April 2010, para. 23. 53 UNCTAD (2010b), op cit., p. 95; UNCTAD (2003a), World Investment Report 2003, NY & Geneva: UN, p. xvii, 171. See further Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 16, 24, 31. 54 E.g. see Alvarez, J. E. and Khamsi, K. (2009), The Argentine Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime, in Sauvant, K. P. (ed.) YB on Int’l Inv L & Pol 2008-2009, NY: OUP, who, bypassing an essential security interests exception, effectively deny the treaty-based right to regulate.

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I. Introduction

the right to regulate, such as different types of exceptions, or the extent to which general international law or arbitral jurisprudence may – or not – accommodate state regulatory flexibility. Conversely, it is not the purpose of the book to suggest how to strike the much-desired balance of interests – the latter may sit uncomfortably in a one-size-fits-all design, and appears to necessitate a more tailored approach mindful of the parties’ specific concerns and sensibilities55. Rather, it seeks to offer the tools necessary for an appraisal of the means and devices available for this balance, thus contributing to a better understanding of the essential legal concept which is the right to regulate within international investment law and, ultimately, the broader discourse on how to enhance the system’s legitimacy. In order to do this, the following chapters will query into right to regulate on the basis of a comparative methodology informed by an extensive database of BITs, model BITs and other IIAs, as well as their interpretation in arbitral jurisprudence and legal scholarship. Research has principally drawn on the right to regulate’s primary manifestations, namely the treaty texts, which thus form the first main source for the analysis. A dual approach is adopted, according to which policy space safeguarded through treaties is examined both with reference to protection standards and – to a lesser degree – with reference to regulatory interests. To the extent possible, the focus is on new treaties from the four corners of the investment world, although now and again region-specific drafting patterns are established, mainly the European and North American models. A caveat is necessary, the term ‘European model’ refers, in the main, to EU Member State investment agreements and not to the EU investment policy since the Treaty of Lisbon. The distinction is essential, since the change of competence appears to bring about a certain degree of convergence with the North American model. Beyond espousing pre-conceived ideas on what to expect of each respective model, the book generally relies for its observations on the actual text of the treaties, with a few examples cited in these cases.

55 E.g. developing countries BITs may wish to accommodate development concerns, which would not be relevant to a BIT between developed economies. On development concerns in international investment law, see Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit. See further generaly on sustainable development, Cordonier Segger, M.-C., Gehring, M. W. and Newcombe, A. (eds) (2011), Sustainable Development in World Investment Law, Alphen aan den Rijn: Kluwer Law International.

28

I. Introduction

Next to this textual comparative approach to treaty-reserved policy space, the book peruses the right to regulate in arbitral jurisprudence, the second key source for the study. As regards interpretation of policy space provisions in IIAs, this perusal acquires a paramount role in the discussion on security exceptions; but so it also does in the field of general international law, grappling with intractable dilemmas such as the extent to which the necessity defence under customary law provides a right to regulate. The analysis of arbitral interpretation also examines jurisprudence in the absence of an explicit right to regulate, centring on the concept of the legitimate regulatory interests of the host state and the concomitant problématique of the existence of an implicit right to regulate. Naturally, the book draws on existing literature as a third major source. This literature, predominantly made up of very recent writings, is often not right to regulate-specific, with one palpable exception, that of legal scholarship on essential security interests and the necessity defence. Other systems of law are briefly touched upon, but not explored in any detail. Finally, the book owes a substantial debt to the work of the OECD and UNCTAD. The two organisations have scrutinised issues of regulatory flexibility for some time, indeed they have been among the first to do so56, and around 50 of their surveys, reports and other publications, as well as some secondary or tertiary sources available on their respective websites, buttress the present analysis. Structurally, the book is organised to explore ten core themes of the right to regulate within international investment law. Following this short prolegomenon, Chapter II commences the discourse on the first theme with some general observations, focusing on a definition of the right to regulate and delineating its outer contours to distinguish it from affiliated concepts. The

56 E.g. for some early discussions, see UNCTAD (2002), Report of the Expert Meeting on the Development Dimension of FDI (Geneva, 6-8 November 2002), TD/B/COM. 2/48, TD/B/COM.2/EM.12/3, 4 December 2002, Geneva: UN (paras. 19 et seq.); UNCTAD (2003a), op cit. (p. 110-113, 145 et seq., and passim); UNCTAD (2003b), The Development Dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4, NY & Geneva: UN (Part IV, p. 187 et seq.); UNCTAD (2003c), Report of the Commission on Investment, Technology and Related Financial Issues on its seventh session, TD/B/EX(31)/3, TD/B/COM.2/50, Geneva, 20-24 January 2003, Geneva: UN (paras. 50, 57); OECD (2004a), op cit.; UNCTAD (2006), Preserving Flexibility in IIAs: The Issue of Reservations, Series on International Investment Policies for Development, UNCTAD/ITE/IIT/2005/8, NY & Geneva: UN.

29

I. Introduction

historical and systemic context of the right to regulate is documented in Chapter III, along with developments currently unfurling at the bilateral and plurilateral level. The same chapter offers an overview of some headline motifs of the right to regulate discussion for EU investment agreements (EUIAs). Chapter IV reviews the ratio legis of drafting an express right to regulate, developing its analysis against the background of arbitration as a perceived threat to state regulatory freedom, and argues for policy space as a remedy to a systemic imbalance. The subsequent chapter (Chapter V) queries into the semantic content of particular types of regulatory interests that run through the entire book. Chapter VI adverts to the insertion of positive language on regulatory interests in IIAs, describing in turn general positive language, the so-called ‘declaratory’ right to regulate and regulatory interests in the preamble. Bridging these ancillary components with provisions introducing a veritable right to regulate, Chapter VII explores the complexities and intricacies of the right to regulate as incorporated in investment treaties de lege lata, focalising, significantly, on exceptions clauses affecting individual standards of treatment and general regulatory clauses. In the framework of the latter, the chapter takes stock of ‘general exceptions’ modelled after Article XX GATT. Chapter VIII examines two structural elements of exceptions clauses, the nexus requirement and self-judging language, and considers the appropriate level of their arbitral review. The next chapter (Chapter IX) surveys the occurrence and drafting mode of three particular types of regulatory interests, namely essential security interests, taxation and cultural diversity. Pursuing the exploration of the right to regulate from conventional law to general international law, Chapter X opens with an enquiry into customary international law as reflected in the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts (hereinafter ILC Articles)57. Drawing from the ILC Articles’ circumstances precluding wrongfulness58, the focus is on the necessity defence59. The remainder of the analysis turns to other state ‘defences’ in international law relating to particularly-defined situations, including ius cogens, the clausula rebus sic stantibus and bribery. Moving away from a right

57 See Draft Articles on Responsibility of States for Internationally Wrongful Acts, Report of the International Law Commission on the work of its fifty-third session (23 April – 1 June and 2 July – 10 August 2001), UN GAOR, 56th Sess., Supp. No. 10, UN Doc. A/56/10 (2001). 58 Chapter V ILC Articles (Articles 20-27). 59 Article 25 ILC Articles.

30

I. Introduction

to regulate with a concrete legal basis, Chapter XI takes account of arbitral jurisprudence on the host state’s legitimate regulatory interests and asks the question whether there exists an implicit right to regulate. It advances the argument that absent a concrete legal basis, there is no automatic presumption in favour of its wholehearted – or even half-hearted – acceptance by investment tribunals. The final chapter concludes with an overview and an appraisal of the issues canvassed, and an outlook on the future of the right to regulate within international investment law.

31

II. The right to regulate: general observations

The capacity of a state to regulate is well-entrenched in customary international law. A ‘basic attribute of sovereignty under international law’60 and an expression of the principles of sovereign equality61 and permanent sovereignty over natural resources62, it signifies freedom to engage in political, economic, legislative and other regulatory activity as the state sees fit. International law and, more crucially for the right to regulate context, investment treaties impose restrictions on such state freedom63. But while maximal regulatory flexibility exists where a state does not enter into an investment treaty in the first place, circumscribing this freedom by means of an IIA is itself a manifestation of the state’s regulatory capacity64. After assuming an international obligation, a state retains its ability to regulate, to terminate a treaty, or simply to renege on its international obligations. This capacity, or general state freedom to regulate, assumes a de facto existence and coincides with a lato sensu right to regulate.

60 Mann, H. (2003), The Right of States to Regulate and International Investment Law: A Comment, in UNCTAD The Development Dimension of FDI: Policy and RuleMaking Perspectives, UNCTAD/ITE/IIA/2003/4, NY & Geneva: UN, p. 216. See also Markert, L. (2011), op cit., p. 146 and passim; Sornarajah, M. (2003), Right to Regulate and Safeguards, in UNCTAD The Development Dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4, NY& Geneva: UN, p. 205. 61 On sovereign equality, Decaux, E. (2010), Droit international public, 7th edn, Paris: Dalloz, para. 40; Kokott, J. (2011), States, Sovereign Equality, Max Planck Encyclopedia of Public International Law, OUP, online edn http://www.mpepil.com/ sample_article?id=/epil/entries/law-9780199231690-e1113&recno=3&, accessed August 2012. 62 Schrijver, N. (1997), Sovereignty over Natural Resources: Balancing Rights and Duties, reprinted 2008, NY: CUP, p. 278 et seq.; also, UN General Assembly (1962), Resolution 1803 on Permanent Sovereignty over Natural Resources, A/RES/1803 (XVII), 14 December 1962. 63 Dolzer, R. (2005), The Impact of International Investment Treaties on Domestic Administrative Law, Int’l L & Pol 37, passim; Sornarajah, M. (2003), op cit., p. 205; Sornarajah, M. (2011), op cit., p. 231; UNCTAD (2003a), op cit., p. 145; UNCTAD (2003b), op cit., p. 14; Nouvel, Y. (2002), Les mesures équivalant à une expropriation dans la pratique récente des tribunaux arbitraux, RGDIP 1, p. 96. 64 Nouvel, Y. (2002), op cit., p. 96. Cf. Decaux, E. (2010), op cit., paras 30, 43.

32

A. The right to regulate: what’s in a name…

It is not however on this freedom that the current discourse centres. The right to regulate as a nascent concept in the field of international investment law is a technical term, one that is much narrower in meaning and which should not be confused with the general regulatory capacity discussed immediately above65. Accordingly, the chapter proceeds in two steps: first, it offers a definition of the right to regulate and, secondly, it attempts to distinguish it from some closely intertwined or collateral elements, routinely discussed in this context, in order to found the analysis that ensues on clear conceptual ground. A. The right to regulate: what’s in a name… A term which has not yet found its place in legal dictionaries, the right to regulate denotes the legal right exceptionally permitting the host state to regulate in derogation of international commitments it has undertaken by means of an investment agreement without incurring a duty to compensate. Two elements of this definition merit further elaboration: the nature of the right to regulate as a legal right and the issue of compensation. A legal right: As indicated by its name, the concept encompasses a right with a concrete legal basis. Often safeguarded through conventional law66 and, in particular, treaty-based exceptions67, the right to regulate may also be grounded in general international law68, and it is therefore independent of its express incorporation in an IIA. Incidentally, jurisprudential doctrines and tribunal deference may enhance host state regulatory freedom ex post, by conceding the state’s ‘legitimate regulatory interests’69. Although very much resembling a genuine right to regulate, this case involves a legitimate rather than a legal right of the state to act as it does70. No duty to compensate: According to the definition advanced in the present, a veritable right to regulate exempts the state from the typical compensation requirement vis-à-vis an aggrieved investor. This view is not uni65 66 67 68 69 70

E.g. see UNCTAD (2003a), op cit., p. 147. See Chapters VI, VII and IX. See Chapter VII, especially General observations. See Chapter X. See Chapter XI. See further below, Deference afforded at tribunal discretion. See Chapter XI. On the legal v. legitimate discourse, see also Walter, A. von (2009), The Investor’s Expectations in International Investment Arbitration, TDM 6 (1), p. 34.

33

II. The right to regulate: general observations

formly shared; doubts have been raised, for instance, as to whether a treaty exception does not merely furnish host states ‘with an excuse, without proscribing the legal consequences of that excuse’71 and whether categorical BIT language is not necessary to vitiate the duty to compensate72. However, a successfully invoked treaty exception is deprived of its meaning, where a subsisting requirement to compensate exists73, given that a state has in any case the (lato sensu) right to regulate, so long as it accepts the consequences, viz. the obligation to compensate affected investors74. The centrality of compensation has been recognised by the Feldman Tribunal which posited that reasonable governmental regulation in the public interest cannot be carried out if adversely-affected businesses ‘may seek compensation’75. Compensation would curtail the willingness of the host state to avail itself of its freedom of action76. This question of compensation is also a determinant of whether some customary law defences grant states a right to regulate77. Finally, a suggestion put forward in this context is to vary the obligation to compensate in a departure from the current ‘all or nothing’ model, ac-

71 Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 457. 72 Sloane, R. D. (2012), On the Use and Abuse of Necessity in the Law of State Responsibility, AJIL 106 (3), p. 499. See further Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 456-457, 460. Such categorical BIT language exists in Article 25.1 and 25.2 Southern African Development Community Model Bilateral Investment Treaty Template (SADC Model BIT Template) (2012) (‘Nothing in this Agreement shall be construed to oblige a State Party to pay compensation for adopting or enforcing measures […]’ etc.). 73 Burke-White, W. W. and Staden, A. von (2008), Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties, Va J Int’l L 48, p. 388. See further Muchlinski, P. (2009a), op cit., p. 78. 74 Markert, L. (2011), op cit., p. 146, 150, 165. 75 Marvin Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002 (hereinafter Feldman Award), para. 103. See further Ruggie, J. (2009), Business and human rights: Towards operationalizing the “protect, respect and remedy” framework, Report of the UNSRSG on human rights and transnational corporations and other business enterprises, A/HRC/11/13, 22 April 2009, para. 30,. 76 On compensation as an impediment to host state regulatory freedom, see RobertCuendet, S. (2010), op cit., p. 23; also Markert, L. (2011), op cit., p. 146, 150, 165-166. Contrast Nouvel, Y. (2002), op cit., p. 96. 77 See Chapter X, Legal nature and effects of upholding a defence under the ILC Articles (Compensation).

34

B. … and what’s not in the name

cording to the principle of proportionality78. While in principle this approach is sound, it does not, at first blush, resolve the question of legal uncertainty or of how to secure for the state a predictable sphere of regulatory freedom. B. … and what’s not in the name In addressing the right to regulate, it is important to distinguish it from contiguous concepts and treaty practices that may boost host state regulatory freedom, without for all that granting the state its right to regulate. The present section dwells on such auxiliary elements, in order to better demarcate the terrain of the right to regulate proper. 1. Limiting the scope of investment protection A line needs to be drawn between the right to regulate and limitations on a treaty’s investment protections. The distinction is discussed for two reasons. First, limitations on the scope of a treaty’s investment protections, such as offering a restrictive definition of investment and conditioning treaty protection on the investment’s compliance with host state laws, have been described as protective of the host state’s right to regulate79. The present contribution advances a different interpretation. Secondly, distinguishing between restrictions on the scope of a treaty’s application and exceptions offering a right to regulate is far from being unimportant: in the former case a tribunal may lack jurisdiction and the investor be deprived of locus standi

78 Markert, L. (2011), op cit, p. 166; see further Kriebaum, U. (2007), Regulatory Takings: Balancing the Interests of the Investor and the State, JWI&T 8, p. 729 et seq. and Kriebaum, U. (2008), Eigentumsschutz im Völkerrecht eine vergleichende Untersuchung zum internationalen Investitionsrecht sowie zum Menschenrechtsschutz, Berlin: Duncker & Humblot, p. 554. On proportionality analysis in investment law, see Leonhardsen, E. M. (2012), Looking for Legitimacy: Exploring Proportionality Analysis in Investment Treaty Arbitration, JIDS 3 (1); Kulick, A. (2012), Global Public Interest in International Investment Law, NY: CUP, p. 168-221; Burke-White, W. W. and Staden, A. von (2008), op cit., p. 368 et seq. and passim; Robert-Cuendet, S. (2010), op cit., p. 338-348; see also Kriebaum, U. (2007), ibid., p. 731 et seq. 79 Muchlinski, P. (2009a), op cit., p. 41-42; UNCTAD (2002), op cit., para. 20.

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II. The right to regulate: general observations

(or, if not, it is questionable which party has the onus of proof as to whether the adopted measure is protected under the IIA), while in the latter case it is the state that needs to prove that the measure falls within the scope of the exception it is invoking80, i.e. within the ambit of its right to regulate. Accordingly, in a first step, this section sketches the distinction between the right to regulate and limitations on a treaty’s protections and, in a second step, it highlights examples of such limitations that do not offer a right to regulate, so as to draw a clear line between the two. As defined above81, the right to regulate refers to state capacity to regulate in an area where specific commitments have already been assumed; to wit, where state regulation acts upon policy areas otherwise covered by an in-

80 See Schill, S. W. (2007), International Investment Law and the Host State’s Power to Handle Economic Crises: Comment on the ICSID Decision in LG&E v. Argentina, J Int’l Arb 24 (3), p. 280, with further citations; Newcombe, A. (2011), General Exceptions in International Investment Agreements, in Cordonier Segger, M.-C., Gehring, M. W. and Newcombe, A. (eds), Sustainable Development in World Investment Law, Alphen aan den Rijn: Kluwer Law International, p. 362-363. See also WTO Appellate Body Report, United States — Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, DSR 1997:I, 323, p. 14, incl. ft. 16; Santulli, C. (2005), Droit du contentieux international, Paris: Librairie Générale de Droit et de Jurisprudence, EJA, paras 858 et seq., cf. paras 862 et seq.; United Parcel Service of America Inc. v. Canada, UNCITRAL, Award on the Merits and Separate Statement of Dean Ronald A. Cass, 24 May 2007, Separate Statement of Dean Ronald A. Cass, para. 154, following in the steps of GATT jurisprudence: see e.g. GATT Panel Report, Canada – Administration of the Foreign Investment Review Act, L/5504, adopted 7 February 1984, BISD 30S/ 140, para. 5.20; GATT Panel Report, United States – Section 337 of the Tariff Act of 1930, L/6439, adopted 7 November 1989, BISD 36S/345, para. 5.27; GATT Panel Report, United States – Restrictions on Imports of Tuna, DS21/R, DS21/R, 3 September 1991, unadopted, BISD 39S/155, para. 5.22; cf. WTO Appellate Body Report, United States-Standards for Reformulated and Conventional Gasoline, WT/DS2/ AB/R, adopted 20 May 1996, DSR 1996:I, 3 (hereinafter US-Gasoline AB Report), p. 22-23. See also GATT Panel Report, European Economic Community – Restrictions on Imports of Dessert Apples – Complaint by Chile, L/6491, adopted 22 June 1989, BISD 36S/93, para. 12.3; GATT Panel Report, Japan – Restrictions on Imports of Certain Agricultural Products, L/6253, adopted 2 March 1988, BISD 35S/163, para. 6.9; GATT Panel Report, Canada – Import Restrictions on Ice Cream and Yoghurt, L/6568, adopted 5 December 1989, BISD 36S/68, para. 59. See also DiMascio, N. and Pauwelyn, J. (2008), Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin? AJIL 102 (1), p. 64. Cf. Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Annulment Proceeding, 16 September 2011, para. 135. 81 Above, The right to regulate: what’s in a name...

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B. … and what’s not in the name

vestment treaty. By contrast, narrowing treaty protections with reference to the investor, or the investment, by restricting the investment activity sectors protected, the standards of treatment, or the definition of investment or investor82, results in a cancellation of the underlying commitments with reference to which only there can be talk of a right to regulate. A comparison of the respective approaches to cultural exceptions in French and Canadian treaty practice may help illustrate this reasoning. Whereas the French Model BIT provides that nothing in the agreement shall be construed to prevent the parties from taking action ‘in the framework of measures designed to preserve and promote cultural and linguistic diversity’83, its Canadian counterpart excludes from its protections investments in cultural industries84. Investors wishing to engage in cultural industries under the first of these models are protected by the treaty, while the state retains its right to regulate for the preservation and promotion of cultural and linguistic diversity85; no limitation exists on the scope of the treaty’s protections with reference to the investor. Conversely, according to the Canadian approach, the state undertakes no particular obligation in respect of investments in cultural industries; this then is not a genuine right to regulate but a ratione materiae constriction of the treaty’s scope with regard to the investor (investment activity sector)86. Cultural diversity in the right to regulate context is discussed in Chapter IX87. Further examples of limitations on the treaty’s application with respect to the investor that do not introduce a right to regulate would be offering only some standards of treatment while excluding others88; restricting the protective coverage of a BIT to investment already established in the host

82 See below. 83 Article 1(5) French Model BIT. 84 Article 18(7) Canadian Model BIT (2012). Although cited here as the ‘Canadian Model BIT (2012)’, this template agreement is not the outcome of a formal 2012 BIT revision, but it is the current version of the 2004-revised Model. See Titi, C. (2013b), The Evolving BIT: A Commentary on Canada’s Model Agreement, ITN 3 (4), June 2013. 85 See Chapter IX, Cultural diversity. 86 See ibid. 87 Chapter IX, Cultural diversity. 88 E.g. see Chapter 4 (investment chapter) EFTA-Hong Kong FTA, which does not grant MFN treatment, protection against expropriation or full protection and security. See also Article 129(1) and (2) China-Peru FTA (2009) which confines national treatment protection to the post-establishment phase, although Article 131(1) and (2) grants most-favoured-nation treatment for the same.

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II. The right to regulate: general observations

state89; defining the term investment in the treaty so as to cover only some types of investment90 (such as in the Canadian Model BIT’s closed-list definition of investment 91 or the 1990 Denmark-Poland BIT which covers foreign direct investment but not portfolio investment92); or in the case of a ‘denial of benefits’ clause93, allowing the state to withhold the treaty’s protections under certain circumstances, such as where the investment is owned or controlled by an investor of a third party with which the host state does not maintain diplomatic relations94.

89 This has been the norm in European treaty practice: e.g. see Articles 2 and 3 Austrian Model BIT (2011), Article 3 French Model BIT (2006), Article 2 German Model BIT (2009), Articles 2-4 BLEU Model BIT (2002), Articles 2(1),(4) and 3 Swedish Model BIT (2003), Articles 2(1) and 3 UK Model BIT (2008). But cf. Article 3 Finnish Model BIT (2002), Article 3(2) Austria-Belarus BIT (2001), Article 3(3) China-Finland BIT (2004), Article II Canada-Latvia BIT (1995) and (2009) and Article II Canada-Romania BIT (2009). See further Juillard, P. (1999), L’Accord multilatéral sur l’investissement : Un accord de troisième type? in SFDI, (ed.), Un accord multilatéral sur l’investissement : D’un forum de négociation à l’autre? Paris: A. Pedone, p. 52-56; Juillard, P. (2006), Conclusions générales, in Horchani, F. (ed.) Où va le droit de l’investissement? Actes du colloque organisé à Tunis les 3 et 4 mars 2006. Paris: A. Pedone, p. 317; Joubin-Bret, A. (2008), Admission and Establishment in the Context of Investment Protection, in Reinisch, A. (ed.), Standards of Investment Protection, NY: OUP, p. 10-11. 90 Contrast Muchlinski, P. (2009a), op cit., p. 41. For a further purported limitation, see also UNCTAD (2010c), Most-Favoured-Nation Treatment, UNCTAD IIA Series II, UNCTAD/DIAE/IA/2010/1, NY & Geneva: UN, p. 44-45. 91 Article 1 Canadian Model BIT (2012). Contrast this with the open-ended asset-based definition of investment in Article 1(a) Dutch Model BIT and Article 1(1) German Model BIT. On asset-based and closed-list definitions of investment and on further limitations on the scope of the definition of investment, see UNCTAD (2007b), Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking, UNCTAD/ITE/IIT/2006/5, NY & Geneva: UN, p. 7 et seq. 92 Article 1(1)(b) Denmark-Poland BIT (1990). 93 On denial of benefits clauses, see OECD (2008a), International Investment Law: Understanding Concepts and Tracking Innovations: A Companion Volume to International Investment Perspectives, Paris: OECD, p. 28-33; UNCTAD (2009a), op cit., p. 32-33; Sornarajah, M. (2011), op cit., p. 329. 94 For some examples, see Article 17 US Model BIT (2012), Article 19 Canadian Model BIT, Article 1113 NAFTA, Article 19 ASEAN CIA, Article 11(5) Japan-India Comprehensive Economic Partership Agreement (CEPA) (2011) and Article 72 Indonesia-Japan Economic Partnership Agreement (EPA) (2007), Article 17 ECT. Some Austrian BITs also contain (narrower) ‘denial of benefits’ clauses: e.g. Article 12 2011

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B. … and what’s not in the name

A particular case of narrowing down the definition of protected investment pertains to the issue of investment legality95. Some treaties explicitly provide definitions that comprise only investment made in accordance with ‘the laws and regulations of the Contracting Party receiving it’96 or, more prosaically, require that investment be made in accordance with host state law97. Both sets of provisions remove illegal investment from the protective provisions of the treaty98. A variation of this trend is one, rather stating the obvious, submitting investments expressis verbis to the law of the host state99, sometimes as part of an investment admission clause in treaties that do not cover the pre-establishment stage100. It is accepted that the requirement for the establishment of investment to conform to host state law is

95

96

97

98

99 100

Austrian Model BIT, Article 10 Austria-Armenia BIT (2001), Article 10 AustriaEthiopia BIT (2004), Article 9 Austria-Libya BIT (2002) and Article 10 AustriaNamibia BIT (2002). On the issue of legality, see generally: Schill, S. W. (2012), Illegal Investments in International Arbitration http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1979734; Kriebaum, U. (2010), Illegal Investments, in Klausegger, C. et al. (eds), AAYB 2010. E.g. Article 1 of the Chile-New Zealand BIT, Article 1(2) India-Uzbekistan BIT, Article 1(5) of the New Zealand-Hong Kong BIT, Article 1(2) Colombian Model BIT (2007); see also Article 1(b) and esp. 3(1) Switzerland-Uruguay BIT. Cf. Article 1(c) Australia-India BIT (assets invested ‘in accordance with the laws and investment policies’ of the host state (emphasis added). For other examples, see: Gaillard, E. (2006), Investments and Investors Covered by the Energy Charter Treaty, in Ribeiro, C. (ed.), Investment Arbitration and the Energy Charter Treaty, NY: Juris, p. 59, 61. See also generally OECD (2008a), op cit., Chapter 1, p. 7-100. E.g. Article 10 Costa Rica-Netherlands BIT (1999) and Article 3 Spain-El Salvador BIT (1995). See also Knahr, C. (2007), Investments “in accordance with host state law”, TDM 4 (5); Moloo, R. and Khachaturian, A. (2011), The Compliance with the Law Requirement in International Investment Law, Fordham Int’l L J 34 (6); Joubin-Bret, A. (2008), op cit., p. 16 et seq. Inceysa Vallisoletana S.L. v. El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, para. 195; Salini Costruttori S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001, para. 46; Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, para. 84. Cf. Joubin-Bret, A. (2008), op cit., p. 19, see also p. 16 et seq. See for example Article 10 Mauritius-Singapore BIT. E.g. Article 2(1) UK-Mexico BIT (‘Each Contracting Party shall admit investments in accordance with its laws and regulations.’.).

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II. The right to regulate: general observations

implicit even when not expressly provided for in a treaty101 and, thematically, it belongs to the broader theme of investment legality rather than to the discussion on the right to regulate102. In sum, restrictions on the scope of a treaty’s protections with reference to the investor in the fashion discussed here do not constitute a genuine a right to regulate, but mere carve-outs from investment protections. Arguendo, some of these limitations will be taken up in subsequent discussions. 2. Deference afforded at tribunal discretion A distinction needs to be drawn between a right to regulate and deference offered a state at the discretion of an arbitral tribunal. Although arbitrators occasionally defer to policy decisions taken in apparent derogation of international obligations, thereby granting a state its policy space, the two concepts are fundamentally different. As depicted, the right to regulate is a right with a concrete legal basis103, such as an investment treaty or general international law104, and it connotes state entitlement to act as it does. Deference, on the other hand, has no legal basis; it is an approach to interpretation105 relying on judicial restraint – or activism, depending on one’s viewpoint. It is contingent on the whim of the adjudicator and there is no automatic presumption in its favour106. In other words, the distinction between the two terms broadly parallels the distinction between the law (right to regulate) and the approach to its interpretation (deference), so that in the absence of the former, the same amount of regulatory discretion may only be reserved through tribunal engagement in a jurisgenerative process107. Deference may be displayed both in the absence as in the presence of a right to regulate. For example, absent concrete regulatory flexibility, a tri-

101 Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 101; Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, paras 138-139. 102 Contrast Muchlinski, P. (2009a), op cit., p. 41-42. 103 Above, The right to regulate: what’s in a name…. 104 See, in particular, Chapters VII, IX and X. 105 See also Markert, L. (2011), op cit., p. 158. Compare: Burke-White, W. W. and Staden, A. von (2008), op cit., p. 369. 106 See also Chapter XI, in particular Arbitral jurisprudence and the legitimate interests of the host state, and Markert, L. (2011), op cit., p. 158. 107 See generally Titi, C. (2013a), op cit., and Chapter XI.

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B. … and what’s not in the name

bunal determining the existence of a compensable indirect expropriation may be faced with the dilemma of adopting in its reasoning the doctrine of police powers or the sole effect doctrine (both are discussed in detail later in the book108). Suffice it to note here that, of the two doctrines, the former is more favourable to the state and the latter more favourable to the investor109 with the result that the tribunal’s endorsement of one or the other will generally lead to diametrically opposite conclusions110. However, the choice between the two rests entirely at the tribunal’s discretion and it is not preordained by any legal rule111. Tribunal deference may also come into play present explicit right to regulate language in a treaty or state defences in general international law. A tribunal may opt for a more or less state-friendly interpretation of the applicable law, as exemplified by the wide cast of approaches as to the required severity of an economic crisis before it may be allowed to qualify as a protected interest in some of the Argentine crisis awards112 or the interpretation of self-judging clauses113. Accordingly, the distinction between the right to regulate and deference may form an argument in favour of the inclusion of an express right to regulate in IIAs, for situations that transcend general international law defences114, to ensure that policy space is founded on solid legal ground rather than on tribunal discretion. The question of deference will be revisited in

108 See Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation); see also Chapter VII, Relevance of general exceptions clauses modelled after Article XX GATT (Expropriation). 109 Heiskanen, V. (2003), The Contribution of the Iran-United States Claims Tribunal to the Development of the Doctrine of Indirect Expropriation, Int’l L FORUM D Int’l 5 (3), p. 177 et seq.; Brunetti, M. (2003), Introduction, Int’l L FORUM D Int’l 5 (3), p. 151. But cf. Robert-Cuendet, S. (2010), op cit., p. 178. See further Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation). 110 Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation). 111 See for instance Patrick Mitchell Annulment, op cit., para. 54. See further Chapter XI. Also Markert, L. (2011), op cit., p. 158. 112 See Chapter V, Essential security interests and economic crises. 113 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 370 et seq.; Schill, S. and Briese, R. (2009). “If the State Considers”: Self-Judging Clauses in International Dispute Settlement. Max Planck Yearbook of United Nations Law 13, p. 74 et seq. 114 On general international law defences, see Chapter X.

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Chapter XI, in the context of regulatory freedom offered a state in arbitral jurisprudence absent an explicit right to regulate. 3. Clarifications and interpretative statements Clarifications and interpretative statements are very important for the right to regulate115. They allow substantive treaty standards to ‘be formulated so as to ensure that legitimate regulatory concerns are balanced against investor protection rights’116 and, unsurprisingly, they often go hand-in-hand with considerations of regulatory flexibility117. Nevertheless, they do not generally offer an actual right to regulate. The present section discusses first clarifications and then interpretive statements. Clarifications around the content of BIT provisions, usually occurring in the body of the treaty, in protocols and annexes, or in the exchange of diplomatic notes118, help demarcate the scope of a state’s right to regulate119. This form of interpretive guidance serves legal certainty and predictability120 more than regulatory discretion per se; and, although it may not always be a panacea for treaty interpreters121, its new popularity is easy to grasp, often stemming from a desire to curb the tribunals’ interpretive flexibility

115 E.g. see UNCTAD (2003a), op cit., p. 146. 116 Muchlinski, P. (2009a), op cit., p. 42. 117 For example, Markert, L. (2011), op cit., p. 153; Muchlinski, P. (2009a), op cit., p. 42-44; see also European Parliament (2011a), op cit., para. 24. 118 For an overview of interpretative interventions of the contracting parties throughout the life of an IIA, see UNCTAD (2011c), Interpretation of IIAs: What States Can Do. IIA Issues Note, No.3 December 2011, advance unedited version www.unctad.org/diae. 119 Ibid., p. 2. 120 Ibid., passim. 121 E.g. see Article 21.2 of the US-Morocco FTA, which, after stating in self-judging language that nothing in the agreement ‘shall be construed […] to preclude a Party from applying measures that it considers necessary for […] the protection of its own essential security interests’, goes on to clarify by means of examples which measures it may consider necessary. It is doubtful whether such explanatory statements contribute to legal certainty.

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and stave off future interpretations at odds with the parties’ intentions122. As the European Parliament’s Arif Report123 (now Resolution of 6 April 2011124) pointed out, ‘a number of problems became clear because of the use of vague language in agreements being left open for interpretation, particularly concerning the possibility of conflict between private interests and the regulatory tasks of public authorities’. While EU Member State investment treaties have tended to be laconic instruments, free of elucidations125, post-2004 North American practice favours lengthy BITs and interpretive statements in an apparent attempt to better safeguard host state interests126. The US Model BIT, 42-pages long, epitomises the trend, with clarifications, inter alia, around the scope of standards of treatment127, a narrowing of the definition of investment and of

122 E.g. specifications on whether the MFN standard extends to ISDS in ‘interpretative declaration’ in Argentina and Panama exchange of diplomatic notes concerning their 1996 investment treaty: see National Grid v. Argentina, UNCITRAL, Decision on Jurisdiction, 20 June 2006 (hereinafter National Grid Decision on Jurisdiction), para. 85; and clarifications on interpretation of the umbrella clause, in the context of the SGS v. Pakistan case (SGS Société Générale de Surveillance S.A. v. Pakistan, ICSID Case No. ARB/01/13). See: Note on the Interpretation of Article 11 of the Bilateral Investment Treaty between Switzerland and Pakistan in the light of the Decision of the Tribunal on Objections to Jurisdiction of ICSID in Case No. ARB/ 01/13 SGS Société Générale de Surveillance S.A. v. Pakistan, attached to the Letter of the Swiss Secretariat for Economic Affairs to the ICSID Deputy-Secretary General dated October 1, 2003, cited in Gaillard, E. (2005), Investment Treaty Arbitration and Jurisdiction Over Contract Claims – the SGS Cases Considered, in Weiler, T. (ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law, London: Cameron May, p. 341-342. 123 European Parliament (2011b), Report on the future European international investment policy, 22.3.2011, A7-0070/2011, 2010/2203(INI). 124 European Parliament (2011a), op cit. 125 E.g. see German Model BIT (2009) and French Model BIT (2006). See further Titi, C. (2013a), op cit., p. 832. 126 E.g. the US Model BIT (2012) and the Canadian Model BIT (2012) are around seven or eight times longer than their German (2009) and French (2006) counterparts. Contrast further the 2012 and 2004 US Model BITs with the 1994, almost ‘European-like’ 12-page long, US Model BIT. See further Alvarez, J. E. (2011a), op cit., p. 160. 127 E.g. Article 5 (Minimum Standard of Treatment) US Model BIT (2012).

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expropriation128. For example, Article 5(2) US Model BIT states in respect of the ‘treatment in accordance with customary international law’, including the fair and equitable treatment and the full protection and security standards129, that ‘for greater certainty’130 what is prescribed is the ‘customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights.’131 The same provision clarifies that the full protection and security standard prescribes ‘the level of police protection required under customary international law’132, while an explanatory note attached to that article indicates that this is to be interpreted according to Annex A, which defines what is to be understood by customary international law. A conceptually distinct type of clarification, one that declassifies the confiscatory nature of an indirect expropriation where non-discriminatory regulatory measures have been adopted for the protection of legitimate public interests133, is equivalent to an exception to indirect expropriation. For this reason, that provision is examined as an exception134. Clarifications aside, some treaties provide for a binding interpretive statement formulated jointly by the parties after an arbitration claim has been filed. The Canadian and US Model BITs as well as the 2009 ASEAN Com-

128 See on the 2004 Model (the relevant provisions remain substantially unaltered in the 2012 Model): Juillard, P. (2004), Le nouveau modèle américain de traité bilatéral sur l'encouragement et la protection réciproques des investissements, AFDI 50, p. 672-676; Vandevelde, K. J. (2009), A Comparison of the 2004 and 1994 U.S. Model BITs: Rebalancing Investor and Host Country Interests, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2008-2009, NY: OUP, p. 290 et seq.; Schwebel, S. M. (2006), The United States 2004 Model Bilateral Investment Treaty: an Exercise in the Regressive Development of International Law, TDM 3 (2). 129 Article 5(1) US Model BIT (2012). 130 The 2012 US Model BIT contains 11 ‘for greater certainty’ statements. 131 Other treaties have included similar clarifications. See for instance Article 10.5(2) Australia-Chile FTA. 132 Emphasis added. See similar provision of Article 10.5(2) Australia-Chile FTA. 133 E.g. Annex B, para. 4(b) US Model BIT (2012), Annex B.10(c) Canadian Model BIT (2012), Article 7(4) Austrian Model BIT, Article VI(2)(c) Colombian Model BIT. 134 Chapter VII, The right to regulate and expropriation.

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prehensive Investment Agreement (ASEAN CIA) include such rules135 that allow a host state to influence the outcome of a decision and so enhance ex post its policy space136. But doubtless the best-known such provision is Article 1131(2) NAFTA, which came to the spotlight when the NAFTA Free Trade Commission (FTC)137 delivered its 2001 clarifications relating to Chapter Eleven138. The core criticism directed at this kind of interpretative statement, including by the Pope & Talbot Tribunal that became a recipient of the 2001 NAFTA FTC interpretation after reaching an interim award on the merits139, is its questionable compatibility with the principle of due process140. In sum, both clarifications and interpretive statements may guide a tribunal’s reasoning and influence its understanding of host state obligations under an investment treaty, thereby reinforcing the role that states have to play in the interpretation of their IIAs. 4. Doing away with investor-state dispute settlement Although not granting a right to regulate, the preclusion of access to investorstate dispute settlement (ISDS) has significant ramifications for host state regulatory freedom. Investor-state dispute resolution, described as ‘the most central feature of [investment] treaties and an important institutional ar-

135 Article 33(1) Canadian Model BIT (2012), Article 30(3) US Model BIT (2012), Article 40(3) ASEAN CIA (2009). See further Articles 28(9)(a) and 31 US Model BIT. For some similar provisions, see Article 6(2) Spain-Mexico BIT, Article 10.21(3) US-Morocco FTA. 136 See also generally UNCTAD (2011c), op cit. 137 Article 2001 NAFTA (The Free Trade Commission). 138 NAFTA Free Trade Commission Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001 http://www.sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp. 139 See Pope & Talbot Inc v. Canada, Award in respect of Damages, 31 May 2002 (hereinafter Pope & Talbot Damages Award). This award is typically contrasted with the ADF Group Inc. v. United States, ICSID Case No. ARB(AF)/00/1, Award, 9 January 2003. The latter Tribunal effortlessly accepted the interpretation. See also Harten, G. van (2007), Investment Treaty Arbitration and Public Law, NY: OUP, p. 126 et seq. 140 E.g. see Pope & Talbot Damages Award, op cit., para. 13 (1); also Schreuer, C. (2006), Diversity and Harmonization of Treaty Interpretation in Investment Arbitration, TDM 3 (2), p. 35 and Markert, L. (2011), op cit., p. 153.

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II. The right to regulate: general observations

rangement’ for the promotion and protection of foreign investment141, has been portrayed as an impediment to host state regulatory capacity to ‘undertake welfare-enhancing reforms’ and as causing regulatory chill ‘for fear of triggering arbitration claims or paying compensation’142. The brief analysis that follows highlights the threaded linkages between a relinquishment of ISDS and host state policy space. The Australian Government’s thinking in this respect is particularly revealing: Australia has become known for its antipathy towards investor-state dispute settlement. Already 2004 saw the conclusion of the Australia-US FTA which famously excludes ISDS143. In April 2011, the Gillard Government publicly articulated its decision to discontinue investor-state resolution in its future agreements144, a strategy also pursued by Australia in the ne-

141 Schill, S. W. (2010), Private Enforcement of International Investment Law: Why We Need Investor Standing in BIT Dispute Settlement, in Waibel, M., Kaushal, A., Chung, K.-H. and Balchin, C. (eds), The Backlash against Investment Arbitration, Alphen aan den Rijn: Kluwer Law International, p. 31. Cf. Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Award, 21 June 2011 (hereinafter Impregilo Award), Brigitte Stern’s Concurring and Dissenting Opinion, paras 32 et seq., incl. examples, and further: Robert-Cuendet, S. (2010), op cit., p. 9, with citations. 142 Government of Australia, Productivity Commission (2010), Bilateral and Regional Trade Agreements. Productivity Commission Research Report, Canberra, November 2010 http://www.pc.gov.au/__data/assets/pdf_file/0010/104203/trade-agreements-report.pdf, p. 271. See also Robert-Cuendet, S. (2010), op cit., p. 56, 68-70; Sornarajah, M. (2003), op cit., p. 209; generally, Tienhaara, K. (2011), op cit.; see further UNCTAD (2012a), op cit., p. 90, Table III.3. 143 See Art. 11.16 Australia-United States Free Trade Agreement (Chapter Eleven – Investment). See also Dodge, W. S. (2006), Investor-State Dispute Settlement between Developed Countries: Reflections on the Australia-United States Free Trade Agreement, VJTL 39 (1). 144 Government of Australia, Department of Foreign Affairs and Trade (2011), Gillard Government Trade Policy Statement: Trading our way to more jobs and prosperity, April 2011 http://www.dfat.gov.au/publications/trade/trading-our-way-to-morejobs-and-prosperity.pdf, p. 14. On the Australian Government’s rejection of investor-state dispute settlement, see further Kurtz, J. (2012), Australia’s Rejection of Investor-State Arbitration: Causation, Omission and Implication, ICSID Rev 27 (1); Kurtz, J. (2011), The Australian Trade Policy Statement on Investor-State Dispute Settlement, ASIL Insights 15 (22); Nottage, L. (2011), The Rise and Possible Fall of Investor-State Arbitration in Asia: A Skeptic’s View of Australia’s “Gillard Government Trade Policy Statement”, Sydney Law School Legal Studies Research Paper No. 11/32.

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gotiations on the Trans-Pacific Partnership Agreement145. Among the reasons that the Government offered for this stance, are the ensuing: ‘[The Government does not] support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses. The Government has not and will not accept provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products or its ability to continue the Pharmaceutical Benefits Scheme.’146

Australia is not the only state to have sought to disengage itself from the constrictions of investor-state arbitration commitments in its IIAs. Some new investment treaties do away with investment arbitration in a general fashion147, while others preclude recourse to ISDS for specified policy-areas, typically national security148. Others still, impose stringent criteria before allowing institution of arbitral proceedings149. Despite this professed hostility to investor-state dispute settlement, instead of granting a genuine right to regulate, the preclusion of ISDS renders

145 See Ft. [20] to Section B: Investor-State Dispute Settlement of the Draft TPPA investment chapter draft, leaked at: http://www.citizenstrade.org/ctc/wp-content/ uploads/2012/06/tppinvestment.pdf (June 2012), (‘[Section B does not apply to Australia or an investor of Australia. Notwithstanding any provision of this Agreement, Australia does not consent to the submission of a claim to arbitration under this Section.]’). See also News in Brief: Australia to reject investor-state dispute resolution in TPPA, ITN 3 (2), April 2012, p. 18. 146 Government of Australia, Department of Foreign Affairs and Trade (2011), op cit., p. 14. 147 For example, see Article 107 of the 2006 Japan-Philippines EPA. The 2012 crossstrait China-Taiwan investment agreement is also reported not to include access to investor-state arbitration. See China-Taiwan Bilateral Investment Protection Agreement: dispute resolution mechanisms exclude international arbitration, Herbert Smith Freehills Dispute Resolution – Arbitration News, 23 August 2012. 148 See Article 6.12 (4) India-Singapore Comprehensive Economic Cooperation Agreement, Article 10.18 (3) and Annex 10-C India-Korea Comprehensive Economic Partnership Agreement, Article 19 BLEU-Mexico BIT (1998). Cf. Article VIII(4) BLEU-Colombia BIT (2009) excluding ISDS for this provision on Labour (BIT ratification suspended, see News in Brief: Belgian ratification of Colombia BIT suspended in face of labour protest, ITN, 23 September 2010). See further: Article 41 and Annex IV (Exclusions from Dispute Settlement) of Canada’s Model BIT, also Article 1138 and Annex 1138.2 NAFTA and Annex 3 of the 2011 BIT between Canada and Kuwait. See also Markert, L. (2011), op cit., p. 153 and Newcombe, A. and Paradell, L. (2009), op cit., p. 494-495. 149 Article [15](3) Norwegian Draft Model BIT (2007).

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IIA commitments incomplete legal rules, since it removes a means for their direct arbitrability and enforcement150. This situation has been described as ‘de facto regulatory freedom’151. However, when excluding access to arbitration, the underlying treaty commitments, although not directly enforceable, continue to exist and the state does not have a right to regulate in derogation of them; in other words, if the state has de facto flexibility, it does not also have it de iure. Simply, it may not find itself a respondent in investorstate arbitration. 5. Elimination of the umbrella clause Umbrella clauses bring host state contractual promises under the protective provisions of an IIA, thus extending the latter’s scope ratione personae and materiae152. The question then is whether an umbrella clause has an impact on the right to regulate. Because umbrella clauses impose no constraint on the state’s capacity to regulate per se, it is difficult to answer this question in the affirmative. Nevertheless, treaties seen to be preoccupied with safeguarding host state policy space153 often do not incorporate an umbrella clause: this is true of the 2007 Norwegian Draft Model BIT154, as it is of the 2004 and 2012 US

150 See Markert, L. (2011), op cit., p. 153, also p. 146; Blackaby, N. (2004), op cit., p. 2. See further European Commission (2010a), Communication ‘Towards a comprehensive European international investment policy’, COM(2010)343 final, Brussels, 7.7.2010, p. 9-10, Council (EU) (2010), Conclusions on a comprehensive European international investment policy, Luxembourg, 25.10.2010, 3041st Foreign Affairs Council Meeting, para. 18; Woolcock, S. et al. (2010), The EU approach to international investment policy after the Lisbon Treaty, Brussels: European Parliament, p. 39 et seq. 151 Markert, L. (2011), op cit., p. 153. 152 See also Schreuer, C. (2004), Travelling the BIT Route – Of Waiting Periods, Umbrella Clauses and Forks in the Road, JWI&T 5 (2), p. 249-250, OECD (2008a), op cit., p. 102. Cf. Dolzer, R. and Schreuer, C. (2008), Principles of International Investment Law, NY: OUP, p. 153 et seq. 153 E.g. 2004 and 2012 US Model BITs, 2004 and 2012 Canadian Model BITs, Norway’s Draft Model BIT (2007). See Chapter III, Some developments at the bilateral level. See also Kulick, A. (2012), op cit., p. 73. 154 See also Article [15](1) Norwegian Draft Model BIT on ISDS establishing that legal disputes ‘must be based on a claim that the Party has breached an obligation under this Agreement’ (emphasis added).

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and Canadian Model BITs. Canada, in particular, appears to have never included an umbrella clause in its BITs155, while Australia, also concerned with policy space156, has incorporated umbrella clauses only in a minority of its BITs157. Canada, Australia, and Norway are among a handful of countries that have opted out of ISDS in relation to the Energy Charter Treaty’s umbrella clause158. Other new generation investment treaties, such as third generation Chinese BITs159, generally deemed to be more balanced instruments160, do not contain umbrella clauses161. Conversely, ‘supremely investor-friendly’ treaties162, such as those concluded on the basis of the 1984 US Model BIT163, and other ‘liberal’ treaties, such as those concluded by the United Kingdom164, Germany165 and the Netherlands166 tend to contain umbrella clauses167. Remarkably, the EU negotiating directives of 12 September 2011 authorising the Commission to negotiate, on behalf of the EU,

155 156 157 158 159

160 161 162 163 164 165 166 167

OECD (2008a), op cit., p. 105. See above, Doing away with investor-state dispute settlement. OECD (2008a), op cit., p. 105. See Annex IA to the ECT. Also cited in OECD (2008a), op cit., p. 104-105. On third generation Chinese BITs, see Dulac, E. (2010), The Emerging Third Generation of Chinese Investment Treaties, TDM 7 (4); Bungenberg, M. and Titi, C. (2013b), The Evolution and Future of EU-China Investment Relations, in Shan, W. (ed.) Collected Courses on International Investment law and Arbitration – Silk Road Collected Courses in International Economic Law, Brill (forthcoming); Vadi, V. (2013), Converging Divergences: The Rise of Chinese Outward Foreign Investment and Its Implications for International (Investment) Law, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2011-2012, NY: OUP, p. 712-713. Cf. Shan, W. and Zhang, S. (2013), The Potential EU-China BIT: Issues and Implications, in Bungenberg, M., Reinisch, A. and Tietje, C. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges, Baden Baden: Nomos/Hart, p. 90 et seq. Dulac, E. (2010), op cit.; Bungenberg, M. and Titi, C. (2013b), op cit.; Alvarez, J. E. (2011b), The Return of the State, Minn J Int’l L 20 (2), p. 237-238. Dulac, E. (2010), op cit., p. 17-19. Alvarez, J. E. (2010a), op cit., p. 144. Alvarez, J. E. (2010a), op cit., p. 144. See also Alvarez, J. E. (2010b), The Evolving BIT, TDM 7 (1); Alvarez, J. E. (2010c), Comparison U.S. Model BIT (1984) and U.S. Model BIT (2004), TDM 7 (1). Article 2(2) in the UK’s Model BIT (2008). Article 7(2) in the German Model BIT (2009). Article 3(4) in the Dutch Model BIT (2004). See also OECD (2008a), op cit., p. 105.

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investment chapters in FTAs with Canada, India and Singapore168 as well as the directive for the negotiation on the TTIP169 bring umbrella clauses as an example of provisions offering the desired ‘effective’ investment protection170. An internal EU document on the state of negotiations on the CETA leaked in late 2012 equally demonstrates that the EU is in favour of such a clause171. In any case, despite the general reluctance to endorse umbrella clauses in newer treaties, there appears to exist no direct connection between the absence of an umbrella clause and the right to regulate. 6. Exceptions versus reservations ‘Exceptions’ and ‘reservations’ are two terms interchangeably employed in IIA practice to denote a permission for the host state to derogate from the protective provisions of a treaty172 and are therefore directly allied with host state policy space173. Nonetheless, ‘reservations’ in IIAs must be distinguished from ‘genuine “reservations” in the treaty law sense’174. Mindful of

168 Press Release: Council of the European Union. 3109th General Affairs Council meeting, Brussels, 12 September 2011, 13587/11, PRESSE 285, PR CO 51 http:// www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/EN/genaff/ 124579.pdf, p. 13. The negotiating directives have been leaked at: http:// www.s2bnetwork.org/themes/eu-investment-policy/eu-documents/text-of-themandates.html. 169 Council (EU) directives for the negotiation on the Transatlantic Trade and Investment Partnership between the European Union and the United States of America, Brussels, 17 June 2013, para. 23. The document has been leaked at http:// www.bfmtv.com/economie/exclusif-dit-mandat-negociation-europe-etatsunis-540582.html. 170 Ibid. 171 European Commission (2012), EU Canada Comprehensive Economic and Trade Agreement – Landing zones, DS 1744/12, Brussels, 6 November 2012 http:// www.s2bnetwork.org/fileadmin/dateien/downloads/CETA_-_EU_leaked_investments_protection.pdf, section 7 para. 9. 172 Newcombe, A. and Paradell, L. (2009), op cit., p. 482. See also Article 1108 NAFTA, cited ibid. See further Article 17 Canadian Model BIT (2012) and Article II(1) US-Ukraine BIT (1994) in conjunction with the Annex to that treaty. 173 E.g. see Burke-White, W. W. and Staden, A. von (2008), op cit., p. 316, 386. 174 Ft. 1 to Section IX (Country Specific Exceptions) Multilateral Agreement on Investment Draft Consolidated Text, DAFFE/MAI(98)7/REV1, 22 April 1998 http:// www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf (hereinafter Draft MAI); see also Newcombe, A. and Paradell, L. (2009), op cit., p. 482.

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the significance of exceptions for the right to regulate discourse175, and in the interest of legal clarity, this section will draw the line between exceptions or ‘reservations’ in IIAs and the usual reservations in the ‘treaty law’ sense. The latter type of reservation is defined by the Vienna Convention on the Law of Treaties (VCLT) as: ‘a unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports to exclude or to modify the legal effect of certain provisions of the treaty in their application to that State’.176

This definition excludes ‘special stipulations contained in a treaty and agreed upon by the negotiating States which qualify, limit or vary the legal effect of other provisions of the treaty […]. A reservation is a declaration which is external to the text of a treaty.’177 And yet, this is exactly what so-called ‘reservations’ in IIA practice are not. Instead, they are negotiated terms in a treaty, agreed upon by the parties178, qualifying, limiting or varying the legal effect of other treaty provisions179. They are not unilateral statements180, nor are they external to the treaty. Furthermore, reservations in the VCLT sense become pertinent especially in multilateral treaties – a reservation by one of the parties to a bilateral treaty amounting to a reopening of negotiations181 – while the investment regime has been construed, in the main, on a bilateral

175 E.g. Burke-White, W. W. and Staden, A. von (2008), op cit.; Markert, L. (2011), op cit.; Newcombe, A. (2011), op cit.; Muchlinski, P. (2011), General Exceptions in International Investment Agreements – Preface, in Cordonier Segger, M.-C., Gehring, M. W. and Newcombe, A. (eds), Sustainable Development in World Investment Law, Alphen aan den Rijn: Kluwer Law International; Newcombe, A. and Paradell, L. (2009), op cit. 176 See also Section 2 (Articles 19-23) VCLT on reservations. 177 Sinclair, I. (1984), The Vienna Convention on the Law of Treaties, 2nd edn, Manchester Dover, N.H.: Manchester University Press, p. 51, also citing Imbert (1978) and Ruda (1975). For a concise rendition of the debate on whether a specific declaration amounts to a reservation in the sense of the VCLT and the legal consequences of such determination, see ibid., p. 52 et seq. 178 E.g. see Newcombe, A. and Paradell, L. (2009), op cit., p. 482, Salacuse, J. W. (2009), op cit., p. 267. 179 Such as by permitting derogations from treaty obligations. 180 Newcombe, A. and Paradell, L. (2009), op cit., p. 482. 181 Sinclair, I. (1984), op cit., p. 54, also citing the International Law Commission (1966).

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plane. Reservations in the ‘treaty law’ sense are sometimes encountered in IIAs that follow a full liberalisation model182. In short, ‘reservations’ in IIA practice are often not reservations at all – at least not in the sense of the VCLT – but an altogether different animal, and therefore the term ‘exceptions’ appears more suitable. In the interest of clarity and consistency, it is this term – ‘exceptions’ – that is employed in the book, except where citing an original text that uses the term ‘reservations’ or its etymological derivatives. C. Concluding remarks The right to regulate in international investment law is a legal right that permits a departure from specific investment commitments assumed by a state on the international plane without incurring a duty to compensate. In their endeavour to augment regulatory space, states are further assisted by some correlated elements that operate in a complementary manner but which need to be distinguished from a genuine right to regulate. Their use hinges on a variable geometry that spans from nurturing disguised protectionism, e.g. by eliminating protection standards from the treaty’s scope, to, inter alia, removing the means for making the protections respected through exclusion of ISDS, or relying on tribunal discretion for a state’s right to regulate, thus fostering legal uncertainty. Conversely, in other forms, such as in the case of clarifications in the treaty text, these elements may prove commendable and enhance legal certainty. Starting from a common understanding of what the right to regulate is, and what it is not, it is now opportune to proceed to the exploration of its historical and contemporary context.

182 E.g. see Article 1108 NAFTA and Annexes I-VII. See also generally UNCTAD (2006), op cit.

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III. The right to regulate in context

While the concept of an express right to regulate as a remedy to circumscribed state regulatory freedom is a novel one, provisions aimed at granting host states their policy space have existed for some time. The first bilateral investment treaty signed between Germany and Pakistan stated with reference to Article 2 on protection against discriminatory treatment, that: ‘Measures taken for reasons of public security and order, public health or morality shall not be deemed as discrimination within the meaning of Article 2.’183

Even before the advent of modern investment treaties, exceptions providing for regulatory flexibility have been present in the precursors of today’s investment regime. The concept is also present in other systems of law and is now debated in a broader way in investment treaty negotiations. At the outset, the chapter will chronicle the historical and legal framework in which the right to regulate is situated, in order to better understand how policy space concerns in investment treaties relate to these antecedent or parallel systems. Subsequently, scontemporary developments will be considered, including some that continue to unravel, and which bear a determinative influence on the direction of new trends with regard to the right to regulate. A. The pre-modern-investment-world regime It is not inapposite to talk of a right to regulate in the era before bilateral investment treaties, however, any such discussion should take into consideration that the right to regulate in that framework applies to arrangements different to the ones that make up today’s international investment regime. Forerunners of today’s clauses granting a right to regulate can be found in pre-twentieth century friendship, commerce and navigation (FCN) treaties which introduce exceptions to the early formulations of the most-favoured-

183 1959 Germany-Pakistan BIT, Protocol (2).

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nation (MFN) and national treatment (NT) standards. The paragraphs that follow will offer a tour d’horizon of these provisions. FCN treaties apply to a variety of issues, including ‘Rights, Liberties, Privileges, Immunities and Exemptions in Trade Navigation and Commerce’184 duties and emigration185. The advantages they grant in these domains are based on reciprocity and revolve primarily around the most-favoured-nation and national treatment standards186, but these provisions also introduce exceptions designed to offer the contracting parties regulatory freedom. For instance, the Jay Treaty187 in its Article 15, after enunciating an obligation to grant the contracting party treatment not inferior to that granted to other nations regarding duties paid on imports and exports188, specifies: ‘But the British Government reserves to itself the right of imposing on American Vessels entering into the British Ports in Europe a Tonnage Duty, equal to that which shall be payable by British Vessels in the Ports of America: And also such Duty as may be adequate to countervail the difference of Duty now payable on the importation of European and Asiatic Goods when imported into the United States in British or in American Vessels.’

Article 26 of the same Treaty, regulating trade issues in the event of a conflict between the contracting parties, conditions the permission for merchants from one party to reside and pursue their trading activities in the territory of the other party on their peaceful behaviour and the respect of host state legislation. Should they be asked to leave, for reasons stated therein, they are

184 Articles 3 and 4 Treaty of Amity and Commerce Between the United States and France of February 6, 1778. 185 See UNCTAD (2010c), op cit., p. 9. 186 See for instance Articles 2, 3 and 4 of the Treaty of Amity and Commerce Between the United States and France of February 6, 1778; Articles 13 and 15 of the Jay Treaty (Treaty of Amity, Commerce and Navigation between his Britannick Majesty and the United States of America) of November 19, 1794; Articles III, V, VI, VIII, IX, X and XI of the Treaty of Commerce and Navigation Between AustriaHungary and the United States of August 27, 1829; Articles III, V, IX and X of the Treaty of Friendship, Commerce and Navigation Between Argentina and the United States of July 27, 1853; Articles IV, XII, XIII of the Treaty of Commerce and Navigation between Belgium and the United States of March 8, 1875 (hereinafter Belgium-US FCN). These and other FCN treaties are available through the Avalon Project website http://avalon.law.yale.edu/default.asp. 187 Treaty of Amity, Commerce and Navigation between his Britannick Majesty and the United States of America of November 19, 1794 (hereinafter Jay Treaty). 188 Ibid.

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A. The pre-modern-investment-world regime

given the assurance that they will be allowed one year in which to depart, ‘but this Favor shall not be extended to those who shall act contrary to the established Laws’ (ibid), in a stipulation loosely redolent of modern BIT requirements for investment to be made in accordance with host state laws189. Another example, Article 13 [11] of the 1778 FCN Treaty between France and the United States190, establishes with regard to the privileges provided for in that article: ‘But it is at the same Time agreed that [the Article’s] Contents shall not affect the Laws made or that may be made hereafter in France against Emigrations, which shall remain in all their Force and Vigour; and the United States on their Part, or any of them, shall be at Liberty to enact such Laws relative to that Matter, as to them shall seem proper.’

This provision creates a presumption against the stability of domestic legislation affecting foreign nationals and, in allowing any future unilateral legislative measure as regards ‘emigrations’, it appears to perform the role of a very wide exception clause that grants host states an unqualified right to regulate in the matter. Article XI of the 1829 FCN Treaty between AustriaHungary and the United States191 guaranteeing national treatment for the succession of goods through ‘testament, donation or otherwise’ and the taxes paid for such, provides an analogous exception to the effect that: ‘But this article shall not derogate in any manner from the force of the laws already published, or hereafter to be published, by His Majesty the Emperor of Austria, to prevent the emigration of his subjects.’

While Article VII of the same Treaty, entirely excludes its application from ‘the coastwise navigation of both the contracting parties’. These early regulatory exceptions clauses do not embody a veritable right to regulate. Some of their provisions, such as the requirement to comply with host country laws, state little more than what is already self-evident, similarly as in some modern bilateral investment treaties. Other exceptions, such as those introduced by aforecited Articles VII and XI of the FCN Treaty between Austria-Hungary and the United States, offer carve-outs for policy

189 Chapter II, Limiting the scope of investment protection. 190 Treaty of Amity and Commerce Between the United States and France of February 6, 1778. 191 Treaty of Commerce and Navigation Between Austria-Hungary and the United States of August 27, 1829.

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areas (‘coastwise navigation’ and legislation on emigration respectively), therefore they restrict the substantive coverage of the treaty simpliciter. B. WTO law, EU law and the European Convention on Human Rights Although the advent of the right to regulate terminology is fundamentally owed to international investment law, the concept of regulatory freedom is well-anchored in the realm of at least three other international legal systems. These will be briefly considered in turn. WTO law’s embedded liberalism – contrasted to a common laissez-faire liberalism of old generation investment treaties192 – attempts to reconcile the competing public policy objectives of trade liberalisation and regulatory flexibility193. Regulatory exceptions in investment law are sometimes modelled on GATT provisions, with security exceptions modelled on Article XXI GATT and exceptions modelled after Article XX GATT – or the latter’s mutatis mutandis incorporation in IIAs – among the most conspicuous examples194. By reason of the close relationship between this type of general exceptions in investment law and the WTO article, the relevance of WTO jurisprudence in their respect will be separately examined in Chapter VII195. Exceptions for the protection of regulatory interests are not foreign to EU law either. In the context of the free movement of goods, Article 36 of the Treaty on the Functioning of the European Union (TFEU)196 authorises derogations from the prohibition of restrictions on imports, exports or goods in transit for the protection of regulatory interests, such as public morality and

192 See Kalderimis, D. (2010), Investment Treaties and Public Goods, TDM 7(1), p. 6, 16. See further Titi, C. (2013c), EU investment agreements and the search for a new balance: A paradigm shift from laissez-faire liberalism toward embedded liberalism? Columbia FDI Perspectives, 3 January 2013. 193 Kalderimis, D. (2010), op cit., p. 1, 5-6, 8, 16, incl. ft. 20 citing A. Lang (2006). See further, e.g., Preamble to GATS (‘Recognizing the right of Members to regulate, and to introduce new regulations […] in order to meet national policy objectives and […] the particular need of developing countries to exercise this right’). 194 See Chapter VII, The right to regulate as a general regulatory clause. 195 Chapter VII, Relevance of GATT/WTO jurisprudence. 196 Consolidated version of the Treaty on the Functioning of the European Union, OJ C 83/47, 30.3.2010.

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the protection of human, animal or plant life or health197. Alongside these exceptions, EU law recognises unwritten ones198, first articulated in the famous Cassis de Dijon Judgment and its ‘mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer’199. This created a new exception to the freedom of movement for indirect discrimination200, which has consequently expanded beyond the context of its original conception201. Finally, in human rights law, regulatory flexibility is enshrined in the European Convention on Human Rights (ECHR), which permits derogations from the protection of some rights, when these are, inter alia, prescribed by law, necessary in a democratic society, in the public interest, on grounds of national security, public safety, economic well-being of the country or the protection of health202. The jurisprudence of the European Court of Human Rights (ECtHR) on these provisions has led to the development of the margin of appreciation doctrine203 and the principle of proportionality204. Although

197 Article 36 TFEU provides: ‘The provisions of Articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.’ Remarkably, the last sentence of this Article functions as a chapeau. On the chapeau, see Chapter VII, The right to regulate as a general regulatory clause. 198 Hindelang, S. (2009), The Free Movement of Capital and Foreign Direct Investment, NY: OUP, p. 255; Chalmers, D., Davies, G. and Monti, G. (2010), European Union Law, 2nd edn, NY: CUP, p. 767. 199 CJEU, Case 4/75 Rewe-Zentralfinanz Gmbh v. Landwirtschaftskammer (Cassis de Dijon) [1975] ECR 843, para. 8. 200 Chalmers, D., Davies, G. and Monti, G. (2010), op cit., p. 767. 201 Hindelang, S. (2009), op cit., p. 255 et seq. 202 E.g. see Articles 8(2), 9(2), 10(2), 11(2) ECHR and Article 1 Protocol One ECHR. 203 On the margin of appreciation doctrine, see Chapter VIII, The standard of review in the absence of a self-judging clause. 204 Arai-Takahashi, Y. (2001), The Margin of Appreciation Doctrine and the Principle of Proportionality in the Jurisprudence of the ECHR, Antwerp, Oxford, NY: Intersentia and the Council of Europe webpage http://www.coe.int/t/dghl/cooperation/lisbonnetwork/themis/echr/paper2_en.asp; Kulick, A. (2012), op cit., p. 182-183; Robert-Cuendet, S. (2010), op cit., p. 339-342.

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a discussion of these doctrines transcends the scope of the present analysis, parallels may be drawn between them and how the right to regulate could evolve or be interpreted within international investment law205. The book will examine more closely one question, that of Article 1 Protocol One ECHR as a potential drafting model for exceptions to the expropriation standard206. In sum, the concept that represents the right to regulate is neither novel nor does it stand alone in international investment law, although considerations of regulatory flexibility form part and parcel especially of recent developments. It is to these developments that the chapter now turns. C. Some developments at the bilateral level As already mentioned in the introduction to the book, the bilateral investment treaty universe has been on a part re-evaluation trajectory since the early 2000s, with a rethinking of the formulation of treaty standards in North American IIAs taking centre stage with Canada’s 2004 Model BIT and, in particular, the United States’ 2004 Model BIT207; and in Europe with Norway’s 2007 Draft Model BIT. Although it is beyond the scope of the book to dwell on these developments at length, an overview is nonetheless important because it sets the stage on which the right to regulate is called to act. The rhetoric of these model BIT reviews appears symptomatic of a preoccupation with guaranteeing host state policy space. The revision that gave birth to the 2004 US Model BIT was in the general direction of eliminating some of the more state-restrictive elements of the antecedent US BIT mod-

205 E.g. see Burke-White, W. W. and Staden, A. von (2008), op cit., p. 368 et seq. and passim. See also Leonhardsen, E. M. (2012), op cit.; Kulick, A. (2012), op cit., p. 168-221. Cf. Robert-Cuendet, S. (2010), op cit., p. 347-348. 206 Chapter VII, Exception to expropriation standard modelled on the ECHR. 207 Markert, L. (2011), op cit., p. 146-7. Although the comment was made in view of the 2004 US Model BIT, the finding would be also applicable in the case of the 2012 Model, which follows in the steps of its predecessor. See also Alvarez, J. E. (2011a), op cit., p. 166-167; Alvarez, J. E. (2010a), op cit., p. 160; Juillard, P. (2009), The Law of International Investment: Can the Imbalance Be Redressed? in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2008-2009, NY: OUP, p. 273, 280; Vandevelde, K. J. (2009), op cit., p. 288 et seq. and 301 et seq.; see also Juillard, P. (2004), op cit., p. 677-679; Schwebel, S. M. (2006), op cit. See also Chapter I, Introduction.

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els208, elaborated at the height of neoliberalism209 and the logic of these changes has been emulated in the 2012 Model210. Amendments to the effect that the fair and equitable treatment (FET) and full protection and security are tied to the customary international law minimum standard of treatment of aliens211, declassification of the expropriatory nature of regulatory measures taken for the protection of ‘legitimate public welfare objectives’212, selfjudging language213 of the essential security interests exception214, provisions on the environment215 and labour216 – par excellence in the 2012 US Model BIT –, and preamble language on regulatory interests217 testify to the quest for ampler policy space. The same desire to accommodate host state regulatory freedom has been present in Canada’s 2004 Model BIT218 and has been reiterated in its 2012 version. Notably, Canada’s Model Treaty incorporates a general exceptions’ clause partially modelled after Article XX GATT219. Like the US Model BIT, it equates the fair and equitable treatment and full protection and se-

208 See e.g. Alvarez, J. E. (2010c), op cit. and Vandevelde, K. J. (2009), op cit.; also Alvarez, J. E. (2010b), op cit., Alvarez, J. E. (2011a), op cit., p. 153 et seq. and 165 et seq.; Lévesque, C. (2013), The Challenges of ‘Marrying’ Investment Liberalisation and Protection in the Canada-EU CETA, in Bungenberg, M., Reinisch, A. and Tietje, C. (eds), EU and Investment Agreements: Open Questions and Remaining Challenges, Baden Baden: Nomos/Hart, p. 128; Sornarajah, M. (2012), op cit. See also Chapter IV, Arbitration as a perceived threat to state regulatory freedom. 209 See Alvarez, J. E. (2010b), op cit., p. 12. See further Sornarajah, M. (2010), Toward Normlessness: The Ravage and Retreat of Neo-Liberalism in International Investment Law, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2009-2010. NY: OUP, p. 610; Alvarez, J. E. (2010a), op cit.; Vandevelde, K. J. (1998), Sustainable Liberalism and the International Investment Regime, MJIL 19; Fine, B. (2002), Neither the Washington Nor the Post-Washington Consensus: An Introduction http:// www.networkideas.org/featart/sep2002/washington.pdf. 210 See 2012 US Model BIT. See also Sornarajah, M. (2012), op cit. 211 Article 5 US Model BIT. 212 Annex B (4)(b) US Model BIT (2004 and 2012). 213 See generally Chapter VIII, ‘The State considers’ – Self-Judging clauses; also Chapter IV, Arbitration as a perceived threat to state regulatory freedom. 214 Article 18(2) US Model BIT (2004 and 2012). 215 E.g. Articles 12, 8(3)(c) and 32 US Model BIT (2004 and 2012). 216 E.g. Article 13 US Model BIT (2004 and 2012). 217 For example, on health and safety. See Preamble to the US Model BIT (2004 and 2012). 218 See also Lévesque, C. (2013), op cit., p. 128. 219 Article 18(1) Canadian Model BIT (2012) and Article 10(1) Canadian Model BIT (2004). See Chapter VII, The right to regulate as a general regulatory clause.

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curity with the minimum customary international law standard220 and circumscribes the meaning of indirect expropriation so as to exclude from its scope regulatory measures taken for public welfare objectives221; it comprehends provisions on specific regulatory interests222 and enshrines its essential security interests exception in self-judging language223; it contains an exception covering ‘reasonable measures for prudential reasons’224, while a reference to the sustainable development in the Preamble forms part of the same attempt to reserve policy space. Finally, the 2012 version of Canada’s Model BIT introduces a new provision on corporate social responsibility (CSR)225. In Europe, the debate kindled around Norway’s ill-fated 2007 Draft Model BIT226, buttressed by a policy that sought ‘to further also the state’s right to regulate, highlighting the need to protect the exercise of governmental discretion’227. Among its archetypal provisions aimed at safeguarding policy space may be mentioned its Article XX GATT-inspired general exceptions228, exceptions to expropriation229, prudential regulation230, culture231 and taxation232, a self-judging security exception233, a ‘declaratory’ right to

220 Article 6(1) and (2) Canadian Model BIT (2012) and Article 5(1) and (2) Canadian Model BIT (2004). 221 Annex B.10(c) Canadian Model BIT (2012) and Annex B.13(1)(c) Canadian Model BIT (2004). 222 See Article 15 Canadian Model BIT (2012) and Article 11 Canadian Model BIT (2004) on Health, Safety and Environmental Measures. 223 Article 18(4)(b) Canadian Model BIT (2012) and Article 10(4)(b) Canadian Model BIT (2004). 224 Article 18(2) Canadian Model BIT (2012) and Article 10(2) Canadian Model BIT (2004). 225 Article 16 Canadian Model BIT. 226 See generally Muchlinski, P. (2010), op cit., p. 56 et seq. See also Government of Norway (2007), op cit., generally and in particular points 3.3 and 4.2.10. 227 Muchlinski, P. (2010), op cit., p. 57. 228 Article [24] Norwegian Draft Model BIT (2007). See also Chapter VII, The right to regulate as a general regulatory clause. 229 Article [6](2) Norwegian Draft Model BIT (2007). 230 Article [25] Norwegian Draft Model BIT (2007). 231 Article [27] Norwegian Draft Model BIT (2007). 232 Article [28] Norwegian Draft Model BIT (2007). 233 Article [26] Norwegian Draft Model BIT (2007).

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D. Developments at the plurilateral level

regulate provision234, extensive preamble language on regulatory interests235 and other provisions on specific regulatory concerns236; spanning a motley range of interests as diverse as the protection of health, safety, the environment, labour rights, sustainable development, amelioration of living standards, corporate social responsibility and the fight against corruption in international trade and investment237. Amid public criticism from both business and civil society, Norway’s Draft Model BIT fell short of reaching an acceptable compromise and was abandoned in 2009238. Despite this failure, the Norwegian Draft Model presents an important contribution to the debate on regulatory flexibility and offers an example of how to achieve ‘a greater balance’ between conflicting interests239. In its elaboration, as in those of the US and Canadian Model BITs, an insistence is revealed on couching in the agreements public policy considerations that enhance host state regulatory freedom. Where states subsequently conclude treaties, these considerations are necessarily reflected in their respective BIT practice. D. Developments at the plurilateral level: the Trans-Pacific Partnership Agreement The announcement of the broad outlines of the Trans-Pacific Partnership Agreement on November 12, 2011 signaled the entry in the arena of this new ambitious treaty. The Trans-Pacific Partnership Agreement, predominantly a trade agreement which aims to include investment provisions, is currently negotiated between twelve states240: Australia, Canada, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam241. Although at the time of writing the endgame is not yet in sight, the November 2011 announcement sketches the outline of an investment

234 Article [12] Norwegian Draft Model BIT (2007). See Chapter VI, ‘Declaratory’ right to regulate. 235 See Chapter VI, The right to regulate and the preamble. 236 Article [11] Norwegian Draft Model BIT (2007). 237 See aforecited provisions. 238 Vis-Dunbar, D. (2009), Norway shelves its draft model bilateral investment treaty, ITN, 8 June 2009; Muchlinski, P. (2010), op cit., p. 59. 239 Muchlinski, P. (2010), op cit., p. 81. 240 Notably, including all NAFTA parties. 241 For developments in the TPPA context, see http://www.ustr.gov/tpp.

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III. The right to regulate in context

chapter which ‘will protect the rights of the TPP countries to regulate in the public interest.’242 The taking into account of the ‘legitimate policy objectives of each country’ is further emphasised in the context of the ‘crosscutting trade issue’ of ‘regulatory coherence’243, while US President Barack Obama in meeting with leaders of the TPPA countries remarked that the agreement will aim to include ‘high standards to protect workers’ rights and the environment’244, allowing the assumption of some language on regulatory interests. E. Developments at the collective level: the right to regulate and European investment agreements Developments at the EU level, following the transfer of competence over foreign direct investment from the Member States to the Union with the Treaty of Lisbon245, demonstrate a renewed emphasis on the role of the state

242 Outlines of the Trans-Pacific Partnership Agreement, op cit., under the section: Legal Texts, Investment. 243 Office of the United States Trade Representative, Trans-Pacific Partnership (TPP) Trade Ministers’ Report to Leaders, Endorsed by TPP Leaders, 12 November 2011 http://www.ustr.gov/about-us/press-office/press-releases/2011/november/transpacific-partnership-tpp-trade-ministers%E2%80%99-re, para. 3(A) Regulatory coherence. 244 Remarks by President Barack Obama in Meeting with Trans-Pacific Partnership, Honolulu, 12 November 2011 http://www.ustr.gov/about-us/press-office/speeches/ transcripts/2010/november/remarks-president-barack-obama-meeting-tran. 245 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed in Lisbon on 13 December 2007, entered into force on 1 December 2009, OJ C 306, 17.12.2007 (See Articles 206-207 TFEU). For some of the discussions on the transfer of competence, see Bungenberg, M., Griebel, J. and Hindelang, S. (eds) (2011), EYIEL 2011, Special Issue: International Investment Law and EU Law, Heidelberg: Springer; Bungenberg, M. (2010), Going Global? The EU Common Commercial Policy After Lisbon, in Herrmann, C. and Terchechte, J. P. (eds), EYIEL 2010, Berlin Heidelberg: Springer; Woolcock, S. et al. (2010), op cit.; Bungenberg, M. (2009), Außenbeziehungen und Außenhandelspolitik, in Schwarze, J. and Hatje, A. (eds), Der Reformvertrag von Lissabon, Baden-Baden: Nomos; Tietje, C. (2009a), Die Außenwirtschaftsverfassung der EU nach dem Vertrag von Lissabon, BTW 83; Tietje, C. (2009b), Außenwirtschaftsrechtliche Dimensionen der europäischen Wirtschaftsverfassung, in

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E. Developments at the collective level

(and that of the EU) as the guarantor of public goods and a preoccupation with the furtherance of public policy objectives in the face of counterweighing investment protection obligations. This is eminently apparent in recent documents by EU institutions as well as a joint statement of the EU and the US on shared principles ‘for open and stable investment climates’246. Envisioning the future EU investment policy, with its Resolution of April 6, 2011, the European Parliament stressed that investor protection ‘must remain the first priority’ of future EU investment agreements247. Yet, with the same breath, it levelled indirect criticism at the European Commission for focusing too strongly on investment protection when it ‘should better address the right to protect the public capacity to regulate’248. The Parliament considered the question of ‘the necessary balance between investor protection and the protection of the right to regulate’249 by calling on the Commission to include the right to regulate in all future investment agreements250. In its Resolution of April 6, 2011, the European Parliament devotes no less than four paragraphs to the right to regulate251. In a section entitled

246 247 248

249 250 251

Fastenrath, U. and Nowak, C. (eds), Der Lissabonner Reformvertrag : Änderungsimpulse in einzelnen Rechts- und Politikbereichen, Berlin: Duncker & Humblot; Hindelang, S. (2011), Der primärrechtliche Rahmen einer EU Investitionsschutzpolitik: Zulässigkeit und Grenzen von Investor-Staat-Schiedsverfahren aufgrund künftiger EU Abkommen, WHI Paper 01/11, p. 4 et seq.; Griebel, J. (2009), Überlegungen zur Wahrnehmung der neuen EU-Kompetenz für ausländische Direktinvestitionen nach Inkrafttreten des Vertrags von Lissabon, RIW 55 (7); Herrmann, C. (2010), Die Zukunft der mitgliedstaatlichen Investitionspolitik nach dem Vertrag von Lissabon, EuZW 21 (6); Juillard, P. (2010), Investissement et droit communautaire – A propos des accords bilatéraux d’investissement conclus entre Etats membres et pays tiers, in Masclet, J.-C. et al. (eds), L’Union Européenne : Union de droit, union des droits, Mélanges en l’honneur du Professeur Philippe Manin, Paris : A. Pedone. See Press Release: European Commission, EU and US adopt blueprint for open and stable investment climates, Brussels, 10 April 2012 http://europa.eu/rapid/pressrelease_IP-12-356_en.htm?locale=en. European Parliament (2011a), op cit., para. 15. European Parliament (2011a), op cit., para. 6. In fact the criticism appears to be addressed to the European Commission’s Communication ‘Towards a comprehensive European international investment policy’ (Brussels, 7.7.2010, COM(2010)343 final). European Parliament (2011a), op cit., para. 17. European Parliament (2011a), op cit., paras 23-26. European Parliament (2011a), op cit., paras 23-26.

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Protecting the right to regulate, it proceeds to the ensuing deliberations. The European Parliament: ‘23. Stresses that future investment agreements concluded by the EU must respect the capacity for public intervention; 24. Expresses its deep concern regarding the level of discretion of international arbitrators to make a broad interpretation of investor protection clauses, thereby leading to the ruling out of legitimate public regulations; calls on the Commission to produce clear definitions of investor protection standards in order to avoid such problems in the new investment agreements; 25. Calls on the Commission to include in all future agreements specific clauses laying down the right of parties to the agreement to regulate, inter alia, in the areas of protection of national security, the environment, public health, workers' and consumers’ rights, industrial policy and cultural diversity; 26. Underlines that the Commission shall decide on a case-by-case basis on sectors not to be covered by future agreements, for example sensitive sectors such as culture, education, public health and those sectors which are strategically important for national defence […]; notes that the EU should also be aware of the concerns of its developing partners and should not call for more liberalisation if the latter deem it necessary for their development to protect certain sectors, particularly public services’.

Besides consideration of a direct right to regulate, this same Parliament Resolution comprises four further paragraphs on the ‘Inclusion of social and environmental standards’, where it advocates, inter alia, clauses on sustainable development and corporate social responsibility, a reference to the OECD Guidelines for Multinational Enterprises252 and provisions that prevent the watering-down of social and environmental standards253. Social and environmental considerations as an expression of positive language on regulatory interests are addressed in Chapter VI. The Council’s negotiating directives of September 2011 reiterate the relevance of the right to regulate. The text of the directives reads: ‘In accordance with the principles and the objectives of the Union’s external action254 the respective provisions of the agreement […] shall be without prejudice to the right of the EU and the Member States to adopt and enforce […]

252 OECD (2011a), OECD Guidelines for Multinational Enterprises – 2011 Edition, Paris: OECD. 253 European Parliament (2011a), op cit., paras 27-30. 254 See Article 21 Treaty on European Union (see consolidated version of the Treaty on European Union OJ C 83/13, 30.3.2010) (TEU). See also Chapter V, Regulation in the public interest.

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measures necessary to pursue legitimate public policy objectives such as social, environmental, security, public health and safety in a non-discriminatory manner. The agreement shall respect the policies of the EU and its Member States for the promotion and protection of cultural diversity.’255

The negotiating directives for the ‘deep and comprehensive free trade areas’ comprising investment protection with Egypt, Jordan, Morocco and Tunisia of December 2011256 reportedly contain analogous provisions. The significance of the right to regulate is also emphasised in a July 2012 internal document of the European Commission, which suggested that EU investment treaties should safeguard the parties’ policy space in the way that their trade counterparts do257. Lastly, the Statement of the European Union and the United States on Shared Principles for International Investment of April 2012258, reaffirming the two economies’ commitment to a number of principles for international investment, upholds the conviction that ‘governments can fully implement these principles while still preserving the authority to adopt and maintain measures necessary to regulate in the public interest to pursue certain public policies’ and reiterates that ‘governments should not seek to attract foreign investment by weakening or failing to apply such measures’259. The European Commission’s press release on the Statement is worth mentioning, since it is one of the still few and far between public documents that expressly cite ‘the right to regulate’260. Finally, the directive for the negotiation on the TTIP provides, inter alia, that the agreement ‘should be without prejudice to the right of the EU and the Member States to adopt and enforce, in accordance with their respective competences, measures necessary to pursue legitimate public policy objectives such as social, environ-

255 Council (EU) negotiating directives of September 2011, op cit., under the heading Objective. 256 See EU agrees to start trade negotiations with Egypt, Jordan, Morocco and Tunisia, European Commission News Archive, Brussels, 14 December 2011, http:// trade.ec.europa.eu/doclib/press/index.cfm?id=766. 257 Titi, C. (2013c), op cit. 258 Statement of the European Union and the United States on Shared Principles for International Investment, 10 April 2012 http://trade.ec.europa.eu/doclib/docs/ 2012/april/tradoc_149338.pdf. 259 Ibid. 260 See Press Release: European Commission. EU and US adopt blueprint for open and stable investment climates, op cit. (‘…governments can commit to a high level of investment protection and still maintain the right to regulate in order to pursue legitimate public policy objectives.’.).

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mental, security, stability of the financial system, public health and safety in a non-discriminatory manner. The Agreement should respect the policies of the EU and its Member States for the promotion and protection of cultural diversity.’261

In view of the foregoing discussion, and although the exact mode of its incorporation in the EU investment treaties remains speculative at this stage, considerations of the right to regulate have undoubtedly emerged as a requisite of the EU investment policy and will form part and parcel of future EUIAs. F. Concluding remarks If not called by its proper name, the concept of the right to regulate has nonetheless existed beyond the realm of investment treaty law, both prior to the advent of modern bilateral investment treaties and in parallel orders, namely in WTO law, EU law and the human rights protection system under the umbrella of the Council of Europe. On occasion, its presence in these other legal regimes may serve as inspiration or guidance for interpretation or it may provide modelling designs for new treaties; this is namely the issue of the relevance of WTO jurisprudence to general exceptions clauses modelled after Article XX GATT and whether the ECHR may provide a model for drafting a right to regulate with respect to expropriation. Both are discussed later in the book262. Other developments, ranging from model BIT revisions since 2004 to currently ongoing negotiations in the Pacific area and, notably, those involving the EU as a treaty partner reveal that concerns over regulatory freedom form integral part of negotiations on new generation agreements. As a corollary, they create an expectation that the right to regulate will be included in future treaties, as a result of a concerted and very conscious effort to reserve a modicum of policy space.

261 Council (EU) directive for the negotiation on the TTIP of June 2013, op cit., para. 23, see also para. 8. 262 Chapter VII, Relevance of GATT/WTO jurisprudence and Exception to expropriation standard modelled on the ECHR.

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IV. The rationale for inserting a right to regulate

In order to better understand the role that the right to regulate is called to play in the international edifice of investment protection, the present chapter addresses the issue of whether there exists an overriding rationale in favour of an express right to regulate. To help answer this question, the first section appraises the role of investment arbitration vis-à-vis concerns regarding host state regulatory freedom and its relationship to investment treaties. A perceived systemic imbalance, a deduction of this exegesis, forms a key step to the second section, which considers the need to reserve policy space in light of this very imbalance. A. Arbitration as a perceived threat to state regulatory freedom In a universe263 comprising close to 3,000 BITs and a considerable number of other international agreements with fully fledged investment chapters264, the scope of investment protections, and – the other side of the same coin – state obligations that go with it, have continued to expand, while investorstate arbitration has evolved into the centrepiece and guarantor of this system of protections and has been placed in a unique position from which to formulate international investment law265. The proliferation and growing importance of these tribunals and exponential recourse to dispute settlement266 have acted as the catalyst bringing to the fore an uncomfortable 263 The cosmic phraseology is borrowed from UNCTAD. 264 UNCTAD (2013b), World Investment Report 2013, NY & Geneva: UN, p. 101. 265 Lavranos, N. (2010), Bilateral Investment Treaties (BITs) and EU Law, ESIL Conference 2010 http://ssrn.com/abstract=1683348, p. 2. 266 See UNCTAD (2013b), op cit., p. 110; UNCTAD (2012a), op cit., p. 86; International Centre for Settlement of Investment Disputes (2012), ICSID 2011 Annual Report, Washington: ICSID, p. 25 et seq.; OECD (2006), Improving the System of Investor-State Dispute Settlement: An Overview, in OECD International Investment Perspectives 2006 Edition, Paris: OECD, p. 184; Brown, C. and Miles, K. (2011), Introduction: Evolution in Investment Treaty Law and Arbitration, in Brown, C. and Miles, K. (eds), Evolution in Investment Treaty Law and Arbitration, NY: CUP, p. 3; Petersmann, E.-U. (2006), Justice as Conflict Resolution: Proliferation, Fragmentation, and Decentralisation of Dispute Settlement in Inter-

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tension between investment protection and the states’ regulatory interests267, and, by the same token, they have revealed arbitration as part of a problem – the perceived threat to states’ regulatory interests268. The paragraphs that follow review the role of arbitration in this matrix of conflictive interests and its relationship to the underlying investment treaties. An example from North American BIT practice can help kick off the topic. The experience of the United States as defendant under the NAFTA in the 1990s disclosed a host of obligations undertaken under the US BIT programme which had been understood by the US Administration in a different way than in the claims brought against it in international arbitration269. Having earlier paid scant attention to the investor-state provision in its investment treaties, possibly owing to a confidence in the coherence and integrity of its domestic legal system270, the US was led to rethink the protection standards in its IIAs. As is well-known, these early cases against the US271, despite finding in favour of the state272, resulted in the insertion of language

267 268 269 270 271

272

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national Trade, U Pa J Int’l Econ L 27, passim; Reinisch, A. (2008a), The Proliferation of International Dispute Settlement Mechanisms: The Threat of Fragmentation vs. the Promise of a More Effective System? Some Reflections From the Perspective of Investment Arbitration, in Buffard, I., J. Crawford, J., Pellet, A., Wittich, S. (eds), International Law between Universalism and Fragmentation – Festschrift in Honour of Gerhard Hafner, Leiden-Boston: Martinus Nijhoff; Lavranos, N. (2006), Current Legal Developments: The MOX Plant and IJzeren Rijn Disputes: Which Court Is the Supreme Arbiter? Leiden J Int’l L 19, p. 223, with further references; Muchlinski, P. (2009a), op cit., p. 38. See also Sauvant, K. P. (2011), op cit., p. 418-419. See further McLachlan, C., Shore, L. and Weiniger, M. (2007), International Investment Arbitration: Substantive Principles, NY: OUP, para. 1.58; Muchlinski, P. (2009a), op cit., p. 39; Vandevelde, K. J. (2009), op cit., p. 285-286. Cf. Cosbey, A. (2005), The Road to Hell? Investor Protections in NAFTA’s Chapter 11, in Zarsky, L. (ed.), International Investment for Sustainable Development – Balancing Rights and Rewards, London Sterling, VA: Earthscan, p. 154. Vandevelde, K. J. (2009), op cit., p. 290-292. See also Pope & Talbot case, which led to the NAFTA Free Trade Commission Notes of Interpretation of Certain Chapter 11 Provisions, op cit. Vandevelde, K. J. (2009), op cit., p. 285. Cf. Robert-Cuendet, S. (2010), op cit., p. 484. E.g. Loewen Group, Inc. and Raymond L. Loewen v. United States, ICSID Case No. ARB(AF)/98/3, also Methanex Corporation v. United States, UNCITRAL, Mondev International Ltd. v. United States, ICSID Case No. ARB(AF)/99/2, ADF Group Inc., v. United States, ICSID Case No. ARB(AF)/00/1. E.g. see Alvarez, J. E. (2011a), op cit., p. 87, 259; also www.naftalaw.org/disputes_us.htm.

A. Arbitration as a perceived threat to state regulatory freedom

to ensure that the US Model Treaty’s essential security interests clause was to be interpreted as self-judging273 and later to the 2004 revision of this Model BIT274, in an endeavour to scale down arbitral tribunals’ discretion and to increase the state’s regulatory flexibility275. The system of investor-state arbitration is fraught with complications276. Of particular significance for the present context is a deepening suspicion that arbitral reasoning has not adequately incorporated host state regulatory interests277 and that awards tend to be biased in favour of investors at the expense of states278. These concerns may appear somewhat exaggerated, since host states are the usual winners in investor-state disputes279. The United States, the eighth most arbitrated-against state280, has yet to lose a single case281. Nevertheless, this should not divert from a less complacent reality on the ground: cases brought to arbitral investment review are one-sided,

273 Vandevelde, K. J. (2009), op cit., p. 298. 274 On the revision, see Chapter III, Some developments at the bilateral level. 275 Vandevelde, K. J. (2009), op cit., p. 287 et seq., 298 et seq.; Walter, A. von (2011), op cit., p. 141; Muchlinski, P. (2010), op cit., p. 69-70; Sauvant, K. P. (2011), op cit., p. 426; also European Parliament (2011a), op cit., recital H. See further Chapter III, Some developments at the bilateral level. 276 For some of the criticisms and topics of controversy, see UNCTAD (2012a), op cit., p. 86 et seq.; Waibel, M., Kaushal, A., Chung, K.-H. and Balchin, C. (eds) (2010), The Backlash against Investment Arbitration, Alphen aan den Rijn: Kluwer Law International; Yannaca-Small, K. (2008a), Parallel Proceedings, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds), The Oxford Handbook of International Investment Law, NY: OUP; Blackaby, N. (2004), op cit.; Titi, C. (2013a), op cit. 277 Markert, L. (2011), op cit., p. 147, Brower, C. H., II (2009), op cit., p. 356 et seq.; Alvarez, J. E. (2011a), op cit., p. 77. On this topic, see Chapter XI. 278 Juillard, P. (2009), op cit., p. 273; Markert, L. (2011), op cit., p. 147, citing Kalderimis. 279 See UNCTAD (2013b), op cit., p. 111. See also UNCTAD (2012b), Latest Developments in Investor-State Dispute Settlement, IIA Issues Note, No.1, April 2012 www.unctad.org/diae, p. 3; UNCTADA (2011a), op cit., p. 102; UNCTAD (2011b), Latest Developments in Investor- State Dispute Settlement, IIA Issues Note No.1, March 2011, advance unedited version, UNCTAD/WEB/DIAE/IA/2011/3 www.unctad.org/diae, p. 2; Juillard, P. (2009), op cit. Cf. Sornarajah, M. (2010), op cit., p. 639; Alvarez, J. E. (2011a), op cit., p. 389-392. 280 UNCTAD (2011b), op cit., Annex 1. 281 Alvarez, J. E. (2011a), op cit., p. 87, 259. See also www.naftalaw.org/disputes_us.htm.

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with host states cast in the role of the eternal respondent282. Apart from the usual silence of IIAs on investor obligations283, in the absence of investor consent, state-investor arbitrations may not be initiated by virtue of an investment treaty284. Other ISDS-related critiques, such as awards allegedly expanding beyond the contracting parties’ intentions285, or condoning control of states’ economic and monetary policies by investor interests286, lend their voice to the aforecited problématique and ultimately seem to call into

282 Juillard, P. (2009), op cit., p. 274, 280. See further Robert-Cuendet, S. (2010), op cit., p. 12; also Paulsson, J. (1995), Arbitration Without Privity, ICSID Rev 10 (2). Cf. Toral, M. and Schultz, T. (2010), The State, a Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations, in Waibel, M., Kaushal, A., Chung, K.-H. and Balchin, C. (eds), The Backlash against Investment Arbitration, Alphen aan den Rijn: Kluwer Law International. 283 Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 20; Muchlinski, P. (2009a), op cit., p. 47. – On investor obligations, see Chapter VI, Positive language. 284 Schreuer, C., Malintoppi, L., Reinisch, A. and Sinclair, A. (2009), The ICSID Convention: A Commentary, 2nd edn, NY: CUP, p. 190-191, 211 et seq.; Schreuer, C. (2008a), Consent to Arbitration, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds), The Oxford Handbook of International Investment Law, NY: OUP, p. 836 et seq. and 855 et seq.; Leben, C. (2004), La responsabilité international de l’Etat sur le fondement des traits de promotion et de protection des investissements, AFDI 50, p. 700; see also Toral, M. and Schultz, T. (2010), op cit., p. 579. States may only file a claim against an investor on the basis of an investment contract. At the time of writing, there appear to have been only four confirmed state-investor cases: Gabon v. Société Serete S.A., ICSID Case No. ARB/76/1, Tanzania Electric Supply Co Ltd v. IPTL, ICSID Case No. ARB/98/8, East Kalimantan v. PT Kaltim Prima Coal and others, ICSID Case No. ARB/07/3 and Peru v. Caravelí Cotaruse Transmisora de Energía SAC, ICSID Case No. ARB/13/24. Little information is available in relation to two further cases, Ecuador v. BNDES and Nicaragua v. Grupo Barceló Montelimar. See Toral, M. and Schultz, T. (2010), ibid., p. 589 et seq. 285 UNCTAD (2012a), op cit., p. 88; Sornarajah, M. (2010), op cit., p. 618 et seq.; Sornarajah, M. (2008), A Coming Crisis: Expansionary Trends in Investment Treaty Arbitration, in Sauvant, K. P. and Chiswick-Patterson, M. (eds), Appeals Mechanism in International Investment Disputes, NY: OUP; Burke-White, W. W. (2008), The Argentine Financial Crisis: State Liability under BITs and the Legitimacy of the ICSID System, Asian J WTO & Int’l Health L & Pol 3 (1), p. 202; Titi, C. (2013a), op cit. 286 Schill, S. W. (2006), From Calvo to CMS: Burying an International Law Legacy – Argentina’s Currency Reform in the Face of Investment Protection: The ICSID Case CMS v. Argentina, TDM 3(2), p. 15.

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question far more than the lack of policy space; they touch upon the legitimacy of an entire system287. But arbitration does not exist in a legal vacuum: its viability and modus operandi are predicated on investment protection agreements that both define it and place more or less specific interpretative tools at its disposal288. Criticism, if criticism is due, must be directed not so much at arbitral interpretation but at the indeterminacy and inchoateness of some of the rules under interpretation289. Where IIAs are unambiguous about protecting public interests or about not permitting second-guessing of governmental policies designed to protect them, arbitrators have – or should have – little choice but to give effect to a consideration of the public interest and respect a government’s regulatory choices under the circumstances. But where no relevant provision has been made, guaranteeing states their policy space is not a foregone conclusion290. Therefore, the dissatisfaction with investment arbitration, at the heart of the debate over the right to regulate, is probably only a symptom of a broader

287 From the very prolific literature on the legitimacy crisis and calls for reform, see e.g. Franck, S. D. (2005), The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, Fordham L Rev 73; Alvarez, J. E. (2011a), op cit., p. 75-93, 257-263, 352-406; Burke-White, W. W. (2008), op cit.; Harten, G. van (2007), op cit., p. 152-184; Harten, G. van (2010), Perceived Bias in Investment Treaty Arbitration, in Waibel, M., Kaushal, A., Chung, K.-H. and Balchin, C. (eds), The Backlash against Investment Arbitration, Alphen aan den Rijn: Kluwer Law International; Sornarajah, M. (2008), op cit., p. 41 et seq.; cf. Juillard, P. (2008), Variation in the Substantive Provisions and Interpretation of International Investment Agreements, in Sauvant, K. P. and Chiswick-Patterson, M. (eds), Appeals Mechanism in International Investment Disputes, NY: OUP; Schreuer, C. (2008b), Preliminary Rulings in Investment Arbitration, in Sauvant, K. P. and Chiswick-Patterson, M. (eds), Appeals Mechanism in International Investment Disputes, NY: OUP; Alvarez, J. E. (2010a), op cit., p. 146 et seq.; UNCTAD (2012a), op cit., p. 86-89; Leonhardsen, E. M. (2012), op cit., p. 107-111; Sornarajah, M. (2012), op cit.; see also Public Statement on the International Investment Regime, 31 August 2010, Osgoode Hall Law School http:// www.osgoode.yorku.ca/public_statement. 288 See also Juillard, P. (2009), op cit., p. 275. 289 Paraphrasis of a comment in Lauterpacht, H. (1949), Restrictive Interpretation and the Principle of Effectiveness in the Interpretation of Treaties, BYBIL 26, p. 55. See also Juillard, P. (2009), op cit. 290 See Chapter XI.

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problem: the imperfection, or inadequacy, of the underlying rules291 that leave much to be desired. It is to this flaw that the focus will now turn. B. Policy space as a remedy to a systemic imbalance Old generation bilateral investment treaties are imbalanced instruments292. They are born from a need to protect investors from host state abuses and in their majority they are one-sidedly construed with this sole aim in mind293. As already discussed, it is this asymmetry or imbalance that the right to regulate is called to redress294. Chapter I has described some resultant symptoms, such as a weakening of investment protection standards through BIT denunciations and outright departures from the ICSID system, a legacy of the tension brought to the fore through arbitration. The analysis here builds on these observations, by focusing on the imbalance and the need to tackle it and, so, to introduce the right to regulate. This is its veritable ratio legis. The main concept of balance discussed here is the one between private and public interests, in other words the balance between the interests of investors and host states. As the fifty-odd known cases initiated against Ar-

291 See Juillard, P. (2009), op cit. and below, Policy space as a remedy to a systemic imbalance. 292 Juillard, P. (2009), op cit., p. 275, 280; but cf. Juillard, P. (2008), op cit., p. 82 et seq. and Juillard, P. (2001), Bilateral Investment Treaties in the Context of Investment Law, OECD Investment Compact Regional Roundtable on Bilateral Investment Treaties for the Protection and Promotion of Foreign Investment in South East Europe, 28-29 May 2001 http://www.oecd.org/investment/internationalinvestmentagreements/1894794.pdf, p. 6. See further Ruggie, J. (2008a), Protect, Respect and Remedy: a Framework for Business and Human Rights. Report of the UNSRSG on the issue of human rights and transnational corporations and other business enterprises, A/HRC/8/5, 7 April 2008, para. 12. See also Alvarez, J. E. (2011a), op cit., p. 84, also on critiques of the investment regime, p. 75-93, 257-263, Alvarez, J. E. (1996-1997), Critical Theory and the North American Free Trade Agreement’s Chapter Eleven, U Miami IALR 28(2), p. 310, passim, and Alvarez, J. E. (2010b), op cit., p. 4. 293 See Juillard, P. (2009), op cit., p. 280; see further Alvarez, J. E. (1996-1997), op cit., p. 307-308. Cf. Robert-Cuendet, S. (2010), op cit., p. 484. Cf. Chapter I, Introduction. 294 Above, Chapter I. See further, selectively, Walter, A. von (2011), op cit., Markert, L. (2011), op cit., Muchlinski, P. (2009a), op cit.; also Muchlinski, P. (2010), op cit., Juillard, P. (2009), op cit. and Sornarajah, M. (2012), op cit.

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gentina295 have demonstrated, or indeed other recent cases, such as the two Vattenfall296 and the two Philip Morris297 arbitrations, concerning health and environmental legislation respectively, investor and host state interests are not always aligned298. In the case of adoption of regulatory measures for the protection of a state’s essential security interests299, as in the case of regulation on grounds of other public interests, a conflict is revealed between the state’s quest for policy space and the investor’s interest in ensuring the highest level of protection and legal certainty for its investment300. Ultimately, however, both sides wish to have predictability, transparency and clarity in the overarching legal landscape regulating their relationship. The interest of the state lies in its attractiveness as an investment destination in tandem with retaining its capacity to regulate301 without uncertainty over sizeable compensation awards hanging like the sword of Damocles over its investment policymaking; the interest of the investor lies in the profitability and predictability of its investment302 and so, by definition, in the continuation of the protection system put in place through investment treaties. Underlying this theme, a different question of balance is one between public interests, viz. between conflicting host state interests303. In a twist of the preoccupation with abuse of raison d’Etat and the attendant Machiavellian connotations, where country A recognises for itself the need to safeguard its capacity to regulate by using a treaty exception, it is conscious of the fact 295 See UNCTAD (2013a), op cit., p. 29, Annex 2. 296 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Germany, ICSID Case No. ARB/09/6 (hereinafter Vattenfall I) and Vattenfall and others v. Germany, ICSID Case No. ARB/12/12 (hereinafter Vattenfall II). 297 Philip Morris Brand Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/7 (hereinafter Philip Morris v. Uruguay) and Philip Morris v. Australia, op cit. 298 For an early account of this ‘rivarly’ of interests, see ICJ, Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), Second Phase, Judgment, ICJ Reports 1970, Separate Opinion of Judge Padilla Nervo, p. 245 et seq. and Separate Opinion of Judge Ammoun, p. 288-290. 299 For some definitions, see Chapter IV, Essential Security Interests. 300 E.g. UNCTAD (2009a), op cit., p. 3, 25. See also Muchlinski, P. (2009a), op cit., p. 35-36. 301 UNCTAD (2009a), op cit., p. 25. 302 Ibid., p. 3, 25. 303 See also Juillard, P. (2009), op cit., p. 273, also 281; Alvarez, J. E. (2011a), op cit., p.84-89; García-Bolivar, O. E. (2005), The Teleology of International Investment Law: The Role of Purpose in the Interpretation of International Investment Agreements, JWI&T 6 (5), p. 751.

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that country B may abuse the exception. In the traditional setting of a developed country that imposes its model BIT on a developing country, it is plausible that the former, with the ostensibly more stable domestic legal framework, is cautious about extending an exception to its partner. The argument waged over the balance of public interests is, at its core, a political one304, and will therefore not be further examined here. One way or another, continuation of the investment protection system requires stability and balance305; and, through this lens, adequate policy space is revealed as a sine qua non. It is imperative to tackle the imbalance – real or perceived –within the system306, not only in the interests of host states but also in the interests of investors, given that investment protections that override public policy objectives may in the long term prove damaging to investors307. In helping deter the all-or-nothing approach demonstrated, for example, in the aforementioned withdrawals from the ICSID Convention or in some states’ adamant scepticism of the system308, amending IIA practice through the insertion of policy exception clauses, allowing states their freedom to engage in legitimate regulation, may remedy the risk of witnessing a partial ‘abandonment’ of the investment protection system309. Tackling the imbalance will guarantee that what is at stake, investment protection, is preserved, and will continue to place international arbitration in a unique position from which to interpret and implement investment guarantees, ultimately contributing to balancing investment protection and the states’ regulatory interests.

304 305 306 307 308

Juillard, P. (2009), op cit., p. 273. Markert, L. (2011), op cit., p. 147. Markert, L. (2011), op cit., p. 147 and passim; Juillard, P. (2009), op cit. Kalderimis, D. (2010), op cit., p. 18. E.g. in the case of Brazil, Ireland and even Norway. According to UNCTAD data, Brazil has no BITs in force, Ireland’s sole BIT with the Czech Republic seems to have been terminated and Norway has not signed any BITs since 1996. (See UNCTAD’s Country-specific Lists of Bilateral Investment Treaties http://unctad.org/ en/Pages/DIAE/International%20Investment%20Agreements%20%28IIA%29/ Country-specific-Lists-of-BITs.aspx; also in conjunction with UNCTAD (2010b), op cit., p. 86. See further Government of Norway (2007), op cit., p. 3.). 309 See also Markert, L. (2011), op cit., p. 147 and passim; Juillard, P. (2009), op cit., p. 275; García-Bolivar, O. E. (2005), op cit., p. 756. Cf. Saluka Investments BV v Czech Republic, UNCITRAL, Partial Award, 17 March 2006 (hereinafter Saluka Partial Award), para. 300.

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C. Concluding remarks

C. Concluding remarks The chapter opened with the question of whether there exists a rationale in favour of an express right to regulate and examined arbitration as a perceived menace to state regulatory freedom. It argued that, although the dispute settlement mechanism is replete with shortcomings and finds itself at the crossroads of profoundly competing interests, it is not in principle it but an underlying systemic imbalance that lies at the heart of the problem. This imbalance between public and private interests (but also between opposing public interests) needs to be tackled and a raison d’être of the right to regulate may be precisely that it has a role to fulfill in this respect. Despite the fierce polemic that surrounds it, the right to regulate is not a revolutionary idea coming to capsize the investment law system. Rather it is a measure of balance. It is in this light that it is possible to answer in the positive the question of its rationale. Finally, this topic of the rationale should not be confused with discussions later in the book concerning whether in order to reserve policy space an express right to regulate is necessary310.

310 Especially in Chapter XI.

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V. Types of regulatory interests

A. General observations The discussion now turns to the types of regulatory interests that find protection under treaty exceptions or which are deemed deserving of protection under general international law311 and ventures some definitional elucidations. Exploring the meaning of these interests is of paramount importance, since the scope of the right to regulate often hinges on their very interpretation312; it is these regulatory interests that determine whether a host state measure falls within the purview of an exception and therefore whether international liability may be avoided313. Regulatory interests for which policy space is reserved are often generic terms with elusive, disputed or even controversial meanings, occasionally acquiring divergent semantic content depending on context314. The variety of possible interpretations to which some of these terms may lend themselves has caused some authors to observe, with reference to an ‘ordinary meaning’ interpretation as stipulated in Article 31(1) VCLT, that many of them are devoid of ‘clear, ordinary meanings’315. An example may serve to illuminate this point. A question has been asked whether the term ‘public morality’, often included in German BITs316, is to be understood in the same way when encountered in a BIT between Germany and Pakistan317 as when it is found in a BIT between Germany and Swit-

311 312 313 314

E.g. necessity under the ILC Articles. See generally Chapter X. See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 349. Ibid. p. 349. For example, Burke-White, W. W. and Staden, A. von (2008), op cit., p. 339, see also p. 349. 315 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 339. 316 E.g. see Protocol para. (3) Ad Article 3 (a) Germany-Botswana BIT (2000), Article 3(3) Germany-Ethiopia BIT (2004), Protocol para. (2) Ad Article 2 (a) GermanyHaiti BIT (1973), Protocol (2) Ad Article 3 (a) Germany-Israel BIT (1976) (not entered into force), Protocol para. (3) Ad Article 3(a) Germany-Kenya BIT (1996), Article 3(2) Germany-Pakistan BIT (2009), Protocol para. (2) Ad Article 2 (a) Germany-Zambia (1966). 317 Public morality was included in the 1959 German BIT with Pakistan (Protocol para. (2)), as it is also included in the 2009 Germany-Pakistan BIT (Article 3(2)).

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zerland318. This cas de figure – the scenario is purely hypothetical since no BIT exists between Germany and Switzerland – serves to demonstrate the abstruseness of the term ‘public morality’; a relational notion319 whose interpretation relies on strongly subjective criteria, backed up by a ratione loci link. An arbitral tribunal will probably ascribe a variable meaning to ‘public morality’ depending on whether the respondent is Germany or Pakistan, simply because the term does not have a universal meaning and it is perceived differently in Germany and Pakistan, and what may not trigger the treaty exception in one case may trigger it in the other320. According to UNCTAD, the exception could apply to ‘sectors, such as the media, in order to prohibit pornographic material or other “immoral” publications’321. The potential for abuse, especially with respect to restrictions on the freedom of expression, becomes readily obvious. It may be that employment of this particular term (‘public morality’ or ‘morals’) is better-suited to theological than legal discourse and such an exception will more likely be raised by a theocratic or forcefully religious state rather than in the laic western world. It is possible that when a term is understood in such different ways by the parties that not only it lacks a common ‘ordinary meaning’ but also no ‘special meaning’ has been, or may be, imputed to it through the parties’ agreement322, the term may be better left out. The present chapter concentrates on some of the most commonly-encountered regulatory interests for which state policy space is reserved. Accordingly, it will look seriatim at essential security interests and their variations, public order (ordre public) and the public interest. The focus here is on questions of definition, while the permutations of the particular incorporation of these types of regulatory interests in IIAs are examined separately, especially in Chapters VII and IX.

318 319 320 321

Burke-White, W. W. and Staden, A. von (2008), op cit., p. 339. Ibid., p. 364, also citing J. C. Marwell. See also ibid., p. 364, 366. UNCTAD (2009a), op cit., p. 77. See also CJEU Cases 34/79 R. v. Henn and Darby [1979] ECR 3795 and 121/85 Conegate Limited v. HM Customs & Excise [1986] ECR 1007. 322 See Article 31(4) VCLT: ‘A special meaning shall be given to a term if it is established that the parties so intended.’.

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B. Essential security interests 1. General observations on essential security interests Masked under different names, such as security323, essential security interests324, essential interests325, national security interests326, national security327, public security328, public purpose329, national interest330, but also the qualitatively different state of necessity331, state of national emergency332 or circumstances of extreme emergency333, as well as defence334, national defence335 and ‘international peace and security’336, considerations of essential state security constitute probably the most important regulatory interest,

323 Article 4(1) BLEU-China BIT (1984). 324 Article 18(1) and (2) US Model BIT (2012), Article 18(4)(a) and (b) Canadian Model BIT (2012). 325 Article 25 (Necessity) ILC Articles, Article 8 New Zealand-Hong Kong BIT. 326 See UNCTAD (2009a), op cit., passim. 327 Article 7(1) UK Model BIT (2008), Article 18 Sweden-Mexico BIT (2000), Article 12 Mexico-Switzerland BIT, Article 2102 NAFTA (also applicable to the NAFTA’s investment chapter). 328 Article 3(2) German Model BIT (2009), Article 7(1) UK Model BIT (2008). 329 Article 4(2) BLEU-China BIT (2005), Article 7(2) BLEU-Ethiopia BIT, Article 5(2) BLEU-Guatemala BIT, Article 7(2) BLEU-Libya BIT. Found in BITs concluded by BLEU, ‘public purpose’ – strongly reminiscent of the term ‘public interest’ (see infra, Regulation in the public interest) – is sometimes evoked with clear reference to a state’s essential security interests. E.g. see Article 1(7) BLEU-Guatemala BIT (2005) (‘The term “public purpose” shall mean […] public purpose, security or national interest […]’). See also UNCTAD (2009a), op cit., p. 106-108. 330 Article 4(2) BLEU-Algeria BIT (1991), Article 4(2) BLEU-Burkina Faso BIT (2001), Article 4(2) BLEU-Bolivia BIT (1990), Article 4(2) BLEU-Cameroon (1980). 331 On the state of necessity under customary international law see Chapter X. 332 Article 4 UK-Argentina BIT, Article IV(3) US-Argentina BIT. 333 Article 12(2) Indian Model BIT (2003). 334 Article 2(3) Hungary-Russia BIT (1995). 335 Article III France-Philippines BIT (1976) – but not in the 1994 France-Philippines BIT. 336 Article 18(4)(c) Canadian Model BIT (2012).

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since they affect the very essence of a state’s existence337, and have accordingly not ceased to occupy contracting parties338. Exploration of this regulatory interest commences in the present section with some general definitional remarks, before turning, in the sections that follow, to particular issues bearing upon the scope of its application, addressing first the relationship between essential security interests and economic crises, then the relationship between essential security interests and, on the one hand, economic concerns beyond a crisis situation and, on the other, access to strategic industries. The latter sections of this analysis explore the more idiosyncratic notions of essential interests, international peace and security and circumstances of extreme emergency. National security has been interpreted to comprise the safety of a state, its people and institutions, in particular in the face of military threats, espionage and terrorism339 but also threats to health, the environment340 or severe economic crises341. The concept’s fluidity, partly due to its subjective

337 E.g. see Schenke, W.-R. (2009), Polizei- und Ordnungsrecht, 6th edn, Heidelberg: C. F. Müller Verlag p. 25, with further citations. Translation from German; Brokdorf Judgment, Federal Constitutional Court (Bundesverfassungsgericht), Judgment of the First Senate, May 14 1985, BVerfGE 69, 315, 1 BvR 233, 341/81, para. 78. Available at http://www.servat.unibe.ch/dfr/bv 069315.html and an English translation at http://www.iuscomp.org/gla/judgments/tgcm/v 850514.htm; Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007 (hereinafter Enron Award), para. 306; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 (hereinafter LG&E Decision on Liability), para. 257; International Law Commission (2001), Draft Articles on Responsibility of States for Internationally Wrongful Acts, with Commentaries, Report adopted at the ILC’s fifty-third session, YBILC II, Part Two, Commentary on Article 25, para. 14. 338 E.g. see Article 18 US Model BIT (2012), Article 18(4) Canadian Model BIT (2012), Article 3(2) German Model BIT (2009), Article 7(1) UK Model BIT, Article 3(4) Austrian Model BIT (2011), Article 14(1) Finnish Model BIT (2002), Article II(3) Colombian Model BIT (2007), Article 12(2) Indian Model BIT (2003); see also Article [26] Norwegian Draft Model BIT (2007), Section VI(2) OECD Draft MAI (1998); Council (EU) negotiating directives of September 2011 and of June 2013, op cit.; Article 18 ASEAN CIA (2009), Article 24(3) ECT (1994). See also Sauvant, K. P. (2011), op cit., p. 417-418. 339 See the Oxford English Dictionary definition as cited in UNCTAD (2009a), op cit., p. 7. 340 UNCTAD (2009a), op cit., p. 7. 341 See e.g. UNCTAD (2009a), op cit., p. 7 and below, Essential security interests, economic crises and economic security.

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determination342 and protean nature343, imply that new concerns falling within the ambit of a national security exception continue to emerge344. Although the exact phrasing may reveal semantic variations, in practice some of the terms employed to express security concerns – notably, national security, security, essential security interests, national security interests, and public security – seem to set the same threshold for reliance on the exception345. For instance, it is far from axiomatic that the parties’ selection of the phrase ‘essential security interests’ over ‘national security’ signifies an intention to introduce a distinction between the two346. That said, different legal systems may ascribe special meanings to some of these terms. ‘Public security’, for instance, routinely employed in German BITs347, has a particular meaning in the German legal order348. Other expressions appear to attract distinct interpretations. As will be discussed, the term ‘essential interests’ is somewhat wider and does not completely overlap with the above

342 Muchlinski, P. (2009a), op cit., p. 53. 343 OECD (2009), Security-Related Terms in International Investment Law and in National Security Strategies, Paris: OECD, p. 11, 42, UNCTAD (2009a), op cit., p. 7 et seq. Cf. Sloane, R. D. (2012), op cit., p. 461, on ‘essential interests’. 344 UNCTAD (2009a), op cit., p. 7-8, 29-30. 345 See also Sauvant, K. P. (2011), op cit., p. 417. 346 UNCTAD (2009a), op cit., p. 73. 347 E.g. see Protocol para. (2)(a) Germany-Algeria BIT, Protocol para. (2) Ad Article 2 (a) Germany-Benin BIT, Protocol para. (3) Ad Article 3 (a) Germany-Bolivia BIT, Protocol para. (3) Ad Article 3 (a) Germany-Botswana, Protocol para. (3) Ad Article 3 (a) Germany-Burkina Faso BIT, Protocol para. (3) Ad Article 3 (a) Germany-Cambodia BIT, Article 3(3) Germany-Ethiopia BIT, Protocol para. (2) Ad Article 2 (a) Germany-Haiti BIT, Protocol para. (3) Ad Article 3(a) Germany-Kenya BIT, Protocol para. (3) Ad Article 3 (a) Germany-Laos BIT, Protocol para. (3) Ad Article 3 (a) Germany-Lesotho BIT, Protocol para. (3) Ad Article 3 (a) GermanyMali BIT, Protocol para. (3) Ad Article 3 (a) Germany-Papua New Guinea BIT, Article 3(2) Germany-Pakistan BIT (2009), Protocol para. (3) Ad Article 3 (a) Germany-Philippines BIT, Protocol para. (2) Ad Article 3 (a) Germany-Qatar BIT (1996), Protocol para. (3) Ad Article 3 (a) Germany-Saudi Arabia BIT, Protocol para. (3) Ad Article 3 (a) Germany-Sri Lanka BIT, Article 3(2) Germany-Thailand BIT, Protocol para. (2) Ad Article 3 (b) Germany-Venezuela BIT, Protocol para. (3) Ad Article 3 (a) Germany-Zimbabwe BIT. 348 For a definition, see Schenke, W.-R. (2009), op cit., p. 25, with further citations; also Brokdorf Judgment, German Federal Constitutional Court (Bundesverfassungsgericht), Judgment of the First Senate, 14.5.1985, BVerfGE 69, 315, 1 BvR 233, 341/81 http://www.servat.unibe.ch/dfr/bv 069315.html and for an English translation http://www.iuscomp.org/gla/judgments/tgcm/v 850514.htm, para. 78.

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concepts349. All of the above terms need also to be distinguished from ‘international peace and security’ (the term ‘national security’ is clearly to be distinguished from ‘international peace and security’) as well as from the rest of the emergency concerns, although the distinction may prove troublesome in light of recent arbitral jurisprudence that in interpreting a national security exception appropriated emergency terminology350 and the content of the necessity defence in customary international law351. The same terms need to be distinguished from ‘circumstances of extreme emergency’, a phrase evidently portraying a particular situation with a high threshold of invocation (extreme emergency)352. Although emergency will typically constitute an essential security interests situation, it overlaps with national security and not every national security concern will constitute an emergency and vice versa353. For example, the protection of nationally strategic industries from sovereign wealth fund (SWF) penetration, typically involves no emergency, but may still fuel a valid essential security interests concern354. It is readily palpable from this first examination that the concept of essential security interests in its multiple linguistic nuances requires closer scrutiny, and it is in this vein that the ensuing sections will proceed, looking closer at some of the above terms expressing security interests.

349 See below, Essential interests. 350 See e.g. El Paso Energy International Company v. Argentina, ICSID Case No. ARB/ 03/15, Award, 31 October 2011 (hereinafter El Paso Award), para. 554 (‘in order to analyse the consequences of Article XI [US-Argentina BIT], the first question to answer is whether there was a situation of emergency as defined by that Article’. However, the term ‘emergency’ is entirely absent from that article.) See also, ibid., para. 611. Cf. International Law Commission (1978), “Force majeure” and “Fortuitous event” as circumstances precluding wrongfulness: Survey of State practice, international judicial decisions and doctrine – study prepared by the Secretariat, Topic: State responsibility, A/CN.4/315, YBILC 1978, Vol. II, Part One, paras 20 et seq. 351 E.g. CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005 (hereinafter CMS Award), Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award, 28 September 2007 (hereinafter Sempra Award), and Enron Award, op cit. See Chapter X, Necessity; also Chapter VIII, The nexus requirement. 352 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 367. 353 E.g. see Burke-White, W. W. and Staden, A. von (2008), op cit., p. 332. 354 E.g. see UNCTAD (2009a), op cit., p. 18 et seq. and Cohen, B. (2009), Sovereign Wealth Funds and National Security, Int’l Affairs 85 (4). On sovereign wealth funds, see below, Essential security interests and access to strategic industries.

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2. Essential security interests, economic crises and economic security The relationship between essential security interests and economic crises merits analysis, as one of the salient issues that have emerged with respect to national security355. Its discussion in recent awards356 and the likelihood of future disputes involving economic emergencies357 reinforce this argument. This section surveys the emergence of economic crises as an essential security concern and the threshold for their successful invocation, and briefly enquires into economic security concerns beyond a crisis situation. The notion of national security has evolved over time358. While, historically, interpretation of the term focused on providing defences against military attacks359, it is now broad enough to encompass a range of other interests360. Borne out by the International Court of Justice (ICJ) in its 1986 Nicaragua Judgment361, and advanced by scholarly writings on Article XXI GATT on Security Exceptions362, the expansion of essential security to capture interests beyond those linked to armed conflicts has recently been put to the test again. Tribunals adjudicating the Argentine crisis disputes concurred that essential security interests may come to the legal rescue of a state grappling with a severe financial downturn363; otherwise stated, major economic crises fall within the scope of a state’s essential security interests364,

355 UNCTAD (2009a), op cit., p. 8. 356 E.g. CMS Award, op cit., LG&E Decision on Liability, op cit., Enron Award, op cit., Sempra Award, op cit.; see also Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Award, 21 June 2011 (hereinafter Impregilo Award), para. 339. 357 UNCTAD (2009a), op cit., p. 1; see also p. xvi. 358 OECD (2009), op cit., p. 11, 42. 359 See UNCTAD (2009a), op cit., p. 25-26, OECD (2009), op cit., p. 11; see also Sempra Award, op cit., para. 374. 360 See above, General observations on essential security interests; also UNCTAD (2009a), op cit., p. 7 et seq., also p. 25-26. 361 ICJ, Military and Paramilitary Activities In and Against Nicaragua (Nicaragua v. United States of America), Merits, Judgment, ICJ Reports 1986, p. 14, para. 224. 362 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 351-352, with further citations. 363 E.g. LG&E Decision on Liability, op cit., paras 217 et seq. and esp. para. 238. See further CMS Award, op cit., paras 359-360; Enron Award, op cit., para. 332; Sempra Award, op cit., para. 374; Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008 (hereinafter Continental Casualty Award), paras 176-181. See also, e.g., UNCTAD (2009a), op cit., p. 1, 8; Sloane, R. D. (2012), op cit., p. 454, 460. 364 Ibid.

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since ‘[w]hen a State’s economic foundation is under siege, the severity of the problem can equal that of any military invasion.’365 It is not enough, however, to determine that economic crises may constitute an essential security interest; the former must also be grave enough to trigger application of the exception366. Diverging in their appreciation of the (required) severity of the crisis, some tribunals expected ‘total economic and social collapse’367 or a situation that ‘compromised the very existence of the State and its independence’368, and remained unconvinced that the gravity of the situation at hand crossed that threshold369. Consequently, despite recognising that, in principle, an economic crisis may constitute an essential security interest, these tribunals denied the host state’s right to invoke it. By contrast, other tribunals considered that Argentina’s crisis was of sufficient magnitude to render necessary the enactment of measures for the protection of its essential security interests370. The state was confronted with ‘an extremely serious threat’ to, inter alia, ‘its existence, its political and economic survival’ and ‘the preservation of its internal peace’371. It was further observed that appeal to the pertinent exception does not require ‘total collapse’ or a situation that ‘has already degenerated into one that calls for the suspension of constitutional guarantees and fundamental liberties’372, since ‘[t]here is no point in having such protection if there is nothing left to protect.’373 Regrettably, a degree of ambiguity shrouds the findings of these tribunals, given that some of their deliberations were made on the basis of a treatybased essential security interests exception374, some on the customary law plea of necessity375, and others, while relying on the BIT exception, referred

365 366 367 368 369 370 371 372 373 374 375

E.g. see LG&E Decision on Liability, op cit., para. 238. See e.g. CMS Award, op cit., para. 361. Ibid., para. 355. Enron Award, op cit., para. 306. See also Sempra Award, op cit., para. 348. CMS Award, op cit., paras 355-356; Enron Award, op cit., para. 306; Sempra Award, op cit., para. 348. LG&E Decision on Liability, op cit., para. 226. E.g. LG&E Decision on Liability, op cit., para. 257 and Continental Casualty Award, op cit., para. 180. Continental Casualty Award, op cit., para. 180. Ibid., para. 180. E.g. ibid. E.g. CMS Award, op cit.

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to both376; at least one award, in interpreting an essential security interests exception which encompassed the maintenance of public order377, does not clearly distinguish between the two regulatory interests378. A final question to be asked in this context is whether national security may comprise economic security concerns beyond those involving a financial crisis or a state of economic emergency. The high threshold imposed by some of the Argentine awards on the required severity of a crisis before the latter may qualify as an essential security interest just discussed would probably militate against an affirmative answer where purely economic interests unsustained by an emergency or crisis situation are involved. It seems, however, that, by and large, these interests are also covered by an essential security exception: in the 2003 Oil Platforms case379, the ICJ endorsed the view that ‘the uninterrupted flow of maritime commerce in the Persian Gulf’ constituted a ‘reasonable’ security interest of the United States380. Further elaboration may be necessary before it can be claimed with certainty which economic interests will be deemed to be essential or which conditions will need to be satisfied for the recognition of economic security as an essential security interest. In conclusion, although technically economic crises or economic security may qualify as essential security interests, it is unclear whether in practice they will suffice to trigger application of a relevant exception381. The severity of the Argentine crisis was not yet severe enough for some of the tribunals to engage an essential security interest of the state. It remains to be seen whether future tribunals adopt a more lenient approach as to what may constitute an essential economic security interests situation. 3. Essential security interests and access to strategic industries A special issue of growing significance involving economic interests is that concerning access – or continued access – to nationally sensitive or strategic 376 LG&E Decision on Liability, op cit. 377 Article XI US-Argentina BIT. On the public order see below, Public order (ordre public). 378 E.g. see LG&E Decision on Liability, op cit., para. 226. 379 ICJ, Oil Platforms (Iran v. United States of America), Judgment, ICJ Reports 2003, p. 161 (hereinafter Oil Platforms), para. 73. 380 Ibid., p. 161, para. 73. 381 See also UNCTAD (2009a), op cit., p. 10.

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industries382. Can a measure denying a putative investor access to a nationally sensitive sector trigger the application of an essential security interests exception? An issue deeply entwined with investment liberalisation383, the protection of strategic industries, including against sovereign investors, is recognised as an essential security interest384. This section addresses the finely-grained theme of nationally sensitive industries and sovereign wealth funds in the light of essential state security considerations. Industries falling within the scope of strategic importance (also referred to as ‘strategic infrastructure’385, ‘critical infrastructure’386 or ‘national champions’387) may vary depending on national priorities but, typically, comprise infrastructure, including telecommunications, technology, energy, transportation, water, even agriculture388, and anything pertaining to the military or the defence sector389. A number of elements have been identified as contributing to host states’ increased sensitivity to strategic industries: the wave of privatisations, allowing investors access to erstwhile state-owned industries, disenchantment on the part of the developing world with privatisation contracts concluded in the past and the realisation – with the burgeoning global demand for oil and other commodities – of the importance

382 See generally UNCTAD (2009a), op cit.; see also p. 10 et seq., in conjunction with p. 8. 383 E.g. see UNCTAD (2011d), Investment for development: current policy challenges, Note by the UNCTAD secretariat, Geneva, 5–6 December 2011, Fourth session of the Multi-year Expert Meeting on Investment for Development, TD/B/C.II/ MEM.3/11. 384 See UNCTAD (2009a), op cit., p. 15; see also Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 20. 385 UNCTAD (2009a), op cit., p. 13. 386 OECD (2008b), Protection of ‘Critical Infrastructure’ and the Role of Investment Policies relating to National Security, Paris: OECD. For a definition of ‘critical infrastructure’, see p. 3-5. 387 UNCTAD (2009a), op cit., p. 13. 388 For a definition, see UNCTAD (2009a), op cit., p. 15. 389 E.g. see Article 1 – Article R153-2(10) of the French Décret n°2005-1739 du 30 décembre 2005 réglementant les relations financières avec l'étranger et portant application de l'article L. 151-3 du code monétaire et financier, JORF of 31 December 2005, texte n° 45 and JORF n°3 of 4 January 2006, texte n° 9 page 124 (rectificatif) establishing a process of authorisation or permission for foreign investments in sensitive sectors; see also Gaudin, C. (2007). La bataille des centres de décision : promouvoir la souveraineté économique de la France à l’heure de la mondialisation. Rapport d’information n° 347 (2006-2007), 22 juin 2007 http://www.senat.fr/ rap/r06-347-1/r06-347-11.pdf, p. 317 et seq.

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of energy and other commodities390; but also the emergence of the developing world as a source of investment in a new state of affairs where developed countries see investors from the South gain access to sectors once the privilege of their own multinational enterprises and the attendant fear of sovereign wealth funds391. Sovereign wealth funds occupy a particular place in this context and have constituted the focus of intensified interest and scrutiny in recent years392. While not a new phenomenon393, SWFs display an impressive growth rate394 and manage today an estimated nearly US $5 trillion worth of assets395. Although they have not so far played the role they were expected, or

390 UNCTAD (2009a), op cit., p. 14. 391 Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 20-21; UNCTAD (2009a), op cit., p. 16-17. Cf. Alvarez, J. E. (2010a), op cit., p. 146. 392 E.g. see UNCTAD (2009a), op cit., p. 18 et seq.; Cohen, B. (2009), op cit.; Sauvant, K. P. (2009), op cit., passim; Sauvant, K. P. and Strauss, J. (2012), State-controlled entities control nearly US$ 2 trillion in foreign assets, Columbia FDI Perspectives 64, 2 April 2012; Burgstaller, M. (2011), Sovereign Wealth Funds and International Investment Law, in Brown, C. and Miles, K. (eds), Evolution in Investment Treaty Law and Arbitration, Cambridge: CUP; see also European Commission (2008), Communication ‘A common European approach to Sovereign Wealth Funds’, COM(2008) 115 final, Brussels, 27.2.2008; OECD (2008c), OECD Declaration on Sovereign Wealth Funds and Recipient Country Policies, Paris: OECD; and, generally, OECD Guidance on Sovereign Wealth Funds http://www.oecd.org/daf/inv/ investment-policy/oecdguidanceonsovereignwealthfunds.htm; International Monetary Fund (2008), Sovereign Wealth Funds – A Work Agenda, 29 February 2008 http://www.imf.org/external/np/pp/eng/2008/022908.pdf. Also: Fotak, V. and Megginson, W. (2009), Are SWFs Welcome Now? Columbia FDI Perspectives 9, 21 July 2009; Bolton, P., Samama, F. and Stiglitz, J. E. (eds) (2012), Sovereign Wealth Funds and Long-Term Investing, NY: Columbia University Press; Bassan, F. (2010), Host States and Sovereign Wealth Funds, between National Security and International Law, Eur Bus L Rev 21 (2); Bassan, F. (2011), The Law of Sovereign Wealth Funds, Edward Elgar Publishing; Sauvant, K. P., Sachs, L. E. and Schmit Jongbloed, W. (eds) (2013), Sovereign Investment: Concerns and Policy Reactions, NY: OUP. See also below, Essential security interests and access to strategic industries. 393 UNCTAD (2009a), op cit., p. 18; Cohen, B. (2009), op cit., p. 3; Bassan, F. (2011), op cit., p. 6. 394 Over the course of 2007-2011, and despite the global financial crisis, the total value of SWF assets grew at an annual rate of 10 per cent. See UNCTAD (2012a), op cit., p. 13. See also Burgstaller, M. (2011), op cit., p. 164 et seq.; Bassan, F. (2011), op cit., p. 6 et seq. 395 UNCTAD (2012a), op cit., p. 13. Cf. Sauvant, K. P. and Strauss, J. (2012), op cit.

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feared, to play396 (FDI by SWFs makes up a rather minute fraction of their total assets397), concerns around their size, the fact that they have recently doubled in number398, and their investment strategies, including that they may seek control over sensitive industries, reveal them as a legitimate essential security concern399. SWFs, as other public investors, typically fall within the protective purview of an investment treaty400. Some IIAs explicitly state that sovereign wealth funds constitute covered investment: BITs concluded by Saudi Arabia, owner of one of the largest SWFs401, routinely include that state’s sovereign wealth fund in the definition of investor402. Measures relating to the protection of strategic industries generally take the form of restrictions imposed on entry403 (post-entry restrictions, such as imposed contract renegotiations or forced disinvestment404, remain rarer). Accordingly, even though restrictions for reasons of investment in strategic sectors are considerably more frequent than those imposed on grounds of traditional national security concerns405, they affect a phase of the life of an investment or activities often not covered by the protective provisions of an IIA406. This concentration of restrictions in the pre-establishment stage and the frequent sector- or activities-specific reservations for nationally sensitive industries in treaties that do cover the pre-establishment phase, result in

396 UNCTAD (2009a), op cit., p. 23. 397 An estimated US $125 billion in 2011, according to UNCTAD. See UNCTAD (2012a), op cit., p. 13. 398 UNCTAD (2009a), op cit., p. 18. 399 UNCTAD (2009a), op cit., p. 2; Burgstaller, M. (2011), op cit., p. 163, 181 et seq.; Cohen, B. (2009), op cit., p. 5 et seq.; Bassan, F. (2011), op cit., p. 6 et seq. 400 Burgstaller, M. (2011), op cit., p. 177-181. But cf. Feldman, M. (2012), The Standing of State-Owned Entities under Investment Treaties, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2010-2011, NY: OUP. 401 Cohen, B. (2009), op cit., p. 717, Table I. 402 Of the almost half of the BITs concluded by Saudi Arabia examined, all included such a provision. See for instance, respective Article 1(3)(a)(III) of the AustriaSaudi Arabia BIT, BLEU-Saudi Arabia BIT, Germany-Saudi Arabia BIT, ItalySaudi Arabia BIT, Switzerland-Saudi Arabia BIT and respective Article 1(3)(b) (III) Czech Republic-Saudi Arabia BIT, Saudi Arabia-Korea, Saudi Arabia-Malaysia BIT, and Article 1(2) subparagraph 3 France-Saudi Arabia BIT. 403 UNCTAD (2009a), op cit., p. 28-30; Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 21. 404 UNCTAD (2009a), op cit., p. 30-32. 405 Ibid., p. 10-13. 406 UNCTAD (2009a), op cit., p. 28-30; Joubin-Bret, A. (2008), op cit., p. 10.

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practice in a limited relevance of essential security exceptions to the protection of strategic industries407. 4. Essential interests A distinction needs to be drawn between essential security interests and essential interests. Although the two terms have sometimes been examined interchangeably as if forming a single regulatory interest408, the linguistic nuance between them does not appear to be inconsequential. The analysis that follows endeavours to define essential interests and establish a distinction between them and national security concerns. The term essential interests figures in some BITs409, but it is most characteristically allied with the necessity defence in customary law as incorporated in the ILC Articles410. Although the term’s noncommittal nature did not fail to elicit criticism411, in 1980, Special Rapporteur to the International Law Commission Roberto Ago, offered some indicative examples of ‘essential’ or ‘particularly important’ interests of a state; namely, ‘a grave danger for the very existence of the state, its political or economic survival, the continued functioning of its essential services, the maintenance of its internal peace, the survival of a part of its population, the ecological conservation of its territory or a part thereof’412. Indeed, essential interests have been invoked in connection with a motley range of interests, ‘including safeguarding the environment, preserving the very existence of the State and its people in time

407 408 409 410 411

UNCTAD (2009a), op cit., p. 28-30. E.g. CMS Award, Enron Award, Sempra Award. See also Chapter X, Necessity. E.g. Article 8(3) New Zealand-Hong Kong BIT. Article 25 ILC Articles. The necessity defence is examined in Chapter X, Necessity. Salmon, J. J. A. (1984), Faut-il codifier l’état de nécessité en droit international? in Essays in International Law in Honour of Judge Manfred Lachs – Etudes de droit international en l’honneur du juge Manfred Lachs, The Hague : Martinus Nijhoff Publishers, p. 251, see also p. 250; Salmon, J. J. A. (1987), Les circonstances excluant l’illicéité, in Weil, P. (ed.), Responsabilité internationale, Paris: A. Pedone, p.154-155. 412 Ago, R. (1980), op cit., p. 14, incl. ft. 4. The original text cites ‘un danger grave pour l'existence de l'Etat lui-même, pour sa survie politique ou économique, pour le maintien de la possibilité de fonctionnement de ses services essentiels, pour la conservation de sa paix intérieure, pour la survie d'une partie de sa population, pour la conservation écologique de son territoire ou d'une partie de son territoire, etc.’.

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of public emergency, or ensuring the safety of a civilian population’413. However, as Ago pointed out, the essential nature of the interest to be protected needs to be appreciated on the basis of all pertinent conditions in each situation and it may not receive a definition in abstracto414; an argument rehearsed almost to the word in the ILC Commentaries’ statement that ‘[t]he extent to which a given interest is “essential” depends on all the circumstances, and cannot be prejudged. It extends to particular interests of the State and its people’415. Tempting as it may be to project the above commentaries tels quels to essential security interests, caution is nonetheless advisable. These comments, presented in the context of the necessity defence, discuss the term ‘essential interests’ and not ‘essential security interests’. The latter appear to be a narrower concept: they constitute a particular case of an essential interest relating to a security concern416. By the same token, an interest may be essential but need not inevitably involve a security situation. Essential interests, therefore, may extend to situations that fall outside the regular coverage of a security exception. Two examples help illustrate this point. First, in a 1998 public statement, France’s then Prime Minister made clear that he considered regulatory discretion in the field of cultural policy part of France’s essential interests417. Although cultural policy may be argued to form part of France’s essential interests, it will be rather more difficult to cogently maintain that it also constitutes a national security interest418. A second example of an essential interest that is not necessarily a security concern is protection against ecological damage, as acknowledged by the ICJ in its Gabčíkovo-Nagymaros Project Judgment419. By admitting that Hungary’s concerns for its natural

413 414 415 416 417

ILC (2001), op cit., Commentary on Article 25, para. 14. Ago, R. (1980), op cit., para. 12. ILC (2001), op cit., Commentary on Article 25, para. 15. See above, General observations on essential security interests et seq. Communiqué de M. Lionel Jospin sur la position de la France concernant le projet d'accord multilatéral sur l'investissement (AMI), Paris, 13 February 1998 http:// discours.vie-publique.fr/notices/983000587.html. The topic is discussed in Chapter IX, Cultural diversity. 418 Cf. OECD (2007), International Investment Perspectives 2007: Freedom of investment in a changing world, Paris: OECD, p. 110. 419 ICJ, Gabčíkovo-Nagymaros Project (Hungary/Slovakia), ICJ Reports 1997 (hereinafter Gabčíkovo-Nagymaros Project).

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environment in that case ‘related to an “essential interest” of that State’420, the ICJ opened the door to the recognition of environmental damage as a basis for invoking the necessity defence421. But would ecological damage also fall within the purview of an essential security interests exception? Here the answer is less straightforward. It is possible to envisage situations where ecological damage could be so severe, such as in the event of a catastrophic nuclear accident, that it would trigger application of an essential security interests exception. Either way, it is imperative not to lose sight of the circumstances and the specific provision under interpretation. In encompassing interests beyond those tied to a mere security situation, essential interests may appear to offer ample regulatory space, however the necessity defence, with which the term is predominantly associated, imposes other restrictions that severely circumscribe the potential latitude of the defence422. 5. International peace and security One of the more different security concerns relates to international peace and security – or, in some clauses, international peace or security423. Understood to widen the scope of the exception, in that it disassociates it from the national context424, ‘international peace and security’ remains a relatively unambiguous term425. However, the ambit of the exception appears to differ depending on whether the regulatory interest at hand is linked to measures taken pursuant to the Charter of the United Nations (hereinafter UN Charter) or not. The present section examines in turn these two types of clause, in light of the UN Charter and the interpretative dilemmas it generates. Canada’s Model BIT specifies that the agreement shall not be construed so as to prevent a party ‘from fulfilling its obligations under the United Na-

420 421 422 423 424 425

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Gabčíkovo-Nagymaros Project, op cit., para. 53. See Chapter X, Necessity. See Chapter X, Necessity. See for example Article 18(2) US Model BIT (2012). UNCTAD (2009a), op cit., p. 78. Burke-White, W. W. and Staden, A. von (2008), op cit., p. 355.

B. Essential security interests

tions Charter for the maintenance of international peace and security.’426 Obligations emanating from the Charter are designated by Article 103 UN Charter as a higher rule of law that shall prevail over any other international obligation of UN Members427. In view of this provision, two interpretations are possible. First, if a state adopts a measure in fulfilment of its obligations under the UN Charter428, notably where the UN Security Council has adopted a Resolution under Chapter VII429, with the effect of negatively impacting foreign investment, no international responsibility shall arise, even in the absence of an exception. UN Charter obligations supersede obligations arising out of investment treaties and the state shall not have to comply with the latter430. Viewed from this angle, the Canadian Model BIT’s provision seems tautological and therefore, in legal terms, redundant, possibly performing a political role in reiterating the UN Charter’s supremacy for Canada. However, in reducing the exception to futility, this approach clashes with the principle of effective interpretation431. A second and more plausible reading is possible. It is conceivable that the Charter, while supreme, does not invalidate the obligation under the investment treaty, so that if the latter is contravened, even where such contravention is justified under the UN Charter, compensation is still due to the aggrieved investor. Indeed, there is no compelling reason why the obligation

426 Article 18(4)(c) Canadian Model BIT (2012) (italics in original). The formulation is also reflected in Article 2102 NAFTA. See also Article 3(4)(a) 2011 Austrian Model BIT (but cf. 2002 Austrian Model BIT). 427 Article 103 UN Charter provides: ‘In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.’ See also Article 25 UN Charter: ‘The Members of the United Nations agree to accept and carry out the decisions of the Security Council in accordance with the present Charter.’. 428 See also Articles 25 and 48(2) UN Charter. 429 On the UN Security Council Sanctions Committees and Resolutions, see http:// www.un.org/sc/committees/ and http://www.un.org/Docs/sc/unsc_resolutions.html. 430 Cf. ICJ, Questions of Interpretation and Application of the 1971 Montreal Convention arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v. United States of America), Provisional Measures, Order, 14 April 1992, ICJ Reports 1992, p. 114, paras 42-43. 431 On the principle of effective interpretation, see generally Lauterpacht, H. (1949), op cit. See also ICJ, Corfu Channel Case, Judgment, 9 April 1949, ICJ Reports 1949, p. 24 and US-Gasoline AB Report, op cit. p. 23, incl. ft. 45 with citations.

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to compensate is incompatible with the Charter432 or that the latter, binding on states but not, in principle, creating obligations for individuals433, should affect the beneficiaries of investment treaties. This approach is also indirectly endorsed in the literature, where the exception has been described as allowing states to carry out the measures mandated by the UN Security Council for the maintenance of international peace and security, relegating the full brunt of such state action from host states to investors434. Unlike Canada’s Model BIT, the US Model provides that nothing in the agreement shall be construed to prevent a party ‘from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security’435 with no mention of the UN Charter. In contrast with the Canadian Model Treaty’s ‘maintenance of international peace and security’, a phrase repeated no less than 18 times in the UN Charter436, the US Model’s ‘maintenance or restoration of international peace or security’ is absent from the UN Charter. The linguistic variance by itself does not, at first blush, exclude the possibility that the exception in the US Model BIT may also be restricted to obligations arising out of the UN Charter. What does appear to advocate against it, however, is the lack of any express reference to the Charter. During the MAI negotiations that culminated in a draft provision akin to that of the Canadian Model BIT’s437, the objection had been raised that the express mention of the UN Charter was limiting in that it excluded actions taken in pursuance of equivalent regional security arrangements438. Accordingly, the absence of any reference to the UN Charter in the US Model Treaty seems to suggest that the exception also encompasses such actions taken beyond the context of the UN. This explanation is buttressed by letters of submittal of US treaties

432 E.g. see wording of Article 103, stating that UN Charter obligations ‘shall prevail’ with no further qualifications. 433 E.g. see Articles 25 and 103 UN Charter. 434 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 355. 435 Article 18 US Model BIT (2012). Notice also the ‘measures that it considers necessary’ (emphasis added), on this see Chapter VIII, ‘The State considers’ – SelfJudging clauses. 436 UN Charter Articles 2(6), 11(1) and (2), 12(2), 18(2), 23(1), 24(1), 26, 33(1), 34, 37(2), 43(1), 47(1), 48(1), 52(1), 54, 84, 99. 437 Section VI, General Exceptions, para. 2(c) Draft MAI. 438 OECD (1998), The Multilateral Agreement on Investment: Commentary to the Consolidated Text. DAFFE/MAI(98)8/REV1, 22 April 1998 (hereinafter MAI Commentary), p. 41.

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plainly demonstrating that obligations arising under the UN Charter are an example of obligations incumbent upon the host state for the maintenance or restoration of international peace or security439. A comparable provision also existed in Norway’s now defunct Draft Model BIT440. A question that may be asked is that of identifying the possible obligations arising out of other security arrangements or beyond the UN Charter that may become relevant to the exception441. Given the UN Charter’s primacy, it may be anticipated that such arrangements will not to be contrary to the Charter, or, in other words, that they will be ‘consistent with the Purposes and Principles of the United Nations’442. Compliance with the Charter, however, does not necessarily entail arrangements that also constitute obligations under it. An illustration would be a state going further than or complying overzealously with a UN Resolution, such as in the Al-Jedda v. United Kingdom case, where the ECtHR held that a detention in casu, although authorised by the UN Charter, was not an obligation under the same, and therefore Article 103 UN Charter did not come into play443. The upshot of the foregoing analysis is that there is a distinction between the two types of international peace and security exceptions depending on whether the exception allows derogation when the measures have been mandated by the UN Charter or not. It remains a matter of speculation how the exception will be interpreted in future arbitration.

439 See for example, letters of submittal of the US-Mozambique BIT, the US-Lithuania BIT, the US-Jamaica BIT, US-Albania BIT and the 1999 US-El Salvador BIT (not entered into force). Contrast e.g. Protocol to the US‑Honduras BIT, para. 3 and Protocol to the US-Argentina BIT, para. 6, where the parties, wishing to indicate the contraty, do so expressly. See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 355-356. 440 Article [26](iii) Norwegian Draft Model BIT (2007). 441 See Article 52 UN Charter. 442 Article 52(1) UN Charter. 443 ECtHR, Al-Jedda v. United Kingdom, No. 27021/08, 2011 ECtHR, paras 101-109. See also Milanovic, M. (2011), European Court Decides Al-Skeini and Al-Jedda, EJIL: Talk! 7 July 2011 http://www.ejiltalk.org/european-court-decidesal-skeini-and-al-jedda/.

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6. Circumstances of extreme emergency The final security exception to be surveyed is circumstances of extreme emergency found in Indian BIT practice444. The meaning of the expression has not been elucidated in arbitral jurisprudence445 but it is probably reasonable to assume that it alludes to exceptional circumstances that may comprehend scenarios of very severe economic or political crises, natural disasters or epidemics446, whether or not tied to an officially declared state of emergency. Triggered only where the emergency is ‘extreme’, this provision is, however, of limited value since it is routinely accompanied by an essential security interests exception447. Circumstances of extreme emergency are likely to be a subset of essential security interests448 and, depending on the occasion, could satisfy the criteria for the invocation of the force majeure defence under customary international law449. C. Public order (ordre public) If national security has given rise to a number of interpretations in recent arbitral awards, another commonly-encountered regulatory interest, public order (ordre public), has remained discretely in the background. This section will focus on interpretations of this regulatory interest. Commencing with some general observations, it will subsequently address the meaning of public order in national legal systems and in the international legal order. Public order has a close affinity to national security450 and some treaties include both interests within the purview of the same exception451, rendering a distinction between the two superfluous. Nonetheless, despite their con-

444 E.g. Article 12(2) Indian Model BIT (2003). See also respective Article 12(2) of the BITs between India and Nepal, Austria, Indonesia, Kazakhstan, Oman, Croatia and Sri Lanka, and Article 13 Lithuania-India BIT. 445 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 367. 446 UNCTAD (2009a), op cit., p. 77. 447 See note 444. 448 Contra UNCTAD (2009a), op cit., p. 77, considering that situations of civil disturbance or riots ‘below the threshold of a threat to a country’s essential security interests could likewise be covered’. 449 See Chapter X, Force majeure and distress. 450 See for example UNCTAD (2007b), op cit., p. 84. 451 E.g. see Article XI US-Argentina BIT.

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nection, the two terms are distinct. Present in the majority of German BITs452, a large number of BITs concluded by BLEU453, but absent from the US and Canadian Model BITs and from the NAFTA, public order is possibly a predominantly Continental European concept, rooted in national legal frameworks and occasionally assuming an essential, even constitutional, role454. Public order also makes an appearance in the most recent UK Model BIT455.

452 See Article 3(2) German Model BIT (2009). See also, for example, Protocol para. (2)(a) Germany-Algeria BIT (1996), Protocol para. (2) Ad Article 2 (a) GermanyBenin BIT (1978), Protocol para. (3) Ad Article 3 (a) Germany-Bolivia BIT (1987), Protocol para. (3) Ad Article 3 (a) Germany-Botswana BIT (2000), Protocol para. (3) Ad Article 3 (a) Germany-Burkina Faso BIT (1996), Protocol para. (3) Ad Article 3 (a) Germany-Burundi BIT (1984), Protocol para. (3) Ad Article 3 (a) Germany-Cambodia BIT (1999), Protocol para. (3) Ad Article 2 (b) Germany-Cameroon BIT (1962), Protocol (2) Ad Article 2 (a) Germany-Congo BIT (1969), Article 3(3) Germany-Ethiopia BIT (2004), Protocol para. (2) Ad Article 2 (a) GermanyHaiti BIT (1973), Protocol (2) Ad Article 3 (a) Germany-Israel BIT (1976) (not entered into force), Protocol para. (3) Ad Article 3(a) Germany-Kenya BIT (1996), Protocol para. (3) Ad Article 3 (a) Germany-Lesotho BIT (1982), Protocol para. (3) Ad Article 3 (a) Germany-Mali BIT (1977), Protocol para. (3) Ad Article 3 (a) Germany-Papua New Guinea BIT (1980), Article 3(2) Germany-Pakistan BIT (2009), Protocol para. (3) Ad Article 3 (a) Germany-Philippines BIT (1997), Protocol para. (2) Ad Article 2 (b) Germany-Poland BIT (1989), Protocol para. (2) Ad Article 3 (a) Germany-Qatar BIT (1996), Protocol para. (2) Ad Article 2 (a)(bb) Germany-Rwanda BIT (1967), Protocol para. (3) Ad Article 3 Germany-Saint Lucia BIT (1985), Protocol para. (3) Ad Article 3 (a) Germany-Saudi Arabia BIT (1996), Protocol para. (3) Ad Article 3 (b) Germany-Singapore BIT (1973), Protocol para. (3) Ad Article 3 (a) Germany-Sri Lanka BIT (2000), Article 3(2) Germany-Thailand BIT (2002), Protocol para. (2) Ad Article 3 (b) Germany-Venezuela BIT (1996), Protocol para. (2) Ad Article 2 (a) Germany-Zambia (1966), Protocol para. (3) Ad Article 3 (a) Germany-Zimbabwe BIT (1995). 453 See Article 3(2) BLEU-Libya BIT (2004), Article 3 BLEU-Kazakhstan BIT (1998), Article 3(1) BLEU-Guatemala BIT (2005), Article 2(4) BLEU-Czech Republic BIT (1989), respective Articles 3(2) of the BITs between BLEU and Argentina (1990), Chile (1992), El Salvador (1999), Estonia (1996), Ethiopia (2006), Mauritius (2005), Mexico (1998), Peru (2005), Philippines (1998), Tajikistan (2009), Tunisia (1997), Ukraine (1996), Uruguay (1991) and Uzbekistan (1998). Also, Article 2(3) BLEU Model BIT (2002). 454 OECD (2009), op cit., p. 8. See also Article 73 of the French Constitution 1958 (as amended in 2008), where an exception is introduced to cover, inter alia, ‘la sécurité et l’ordre publics’. 455 Article 7(1) UK Model BIT (2008). Contrast: Article 7 of that treaty’s 2005 predecessor.

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When defining the polysemic concept that is public order, it is necessary to draw a line between the use of the term in civil law and common law systems456 but also between the various meanings and renditions of ordre public in the English language. The notion of ordre public has a long history in French legal practice457. The Dalloz Lexique des termes juridiques defines it as a ‘vast conception of the communal life in the political and legal domain’458. Ordre public may be used in general to restrict civil rights, such as the freedom of thought and expression,459 while in domestic civil law, the concept is defined as the ‘character of legal rules imposed for reasons of morality and security which are imperative in social relations’ and from which there may be no derogation460. The Italian equivalent ordine pubblico is closely related to the French understanding of the term461. In German legal practice, as in German investment treaty practice462, public order (öffentliche Ordnung) is encountered in police legislation, enacted at Land level, and, it is almost invariably included in the phrase ‘public security and order’ (‘öffentliche Sicherheit und Ordnung’)463. Public order in this context evokes the ‘entirety of those unwritten rules of the behaviour of the individual in the public sphere the respect of which is considered – in light of the general perception at a given point in time – indispensable for an orderly life of the people in a community’464. In being ‘unwritten’ these norms sit outside the stricto sensu legal system but they are nonetheless considered necessary for community life465. In common law systems, the concept of public order appears to acquire relevance in the context of street riots and criminal or police laws466. Some US treaties specify that public order includes ‘measures taken pursuant to a

456 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 357. 457 OECD (2009), op cit., p. 8. 458 Guinchard, S. and Debard, T. (eds) (2011), Lexique des termes juridiques 2011, 18th edn, Paris: Dalloz. Also in OECD (2009), op cit., p. 9. 459 OECD (2009), op cit., p. 9. 460 Guinchard, S. and Debard, T. eds (2011), op cit. 461 OECD (2009), op cit., p. 9. 462 Article 3(2) German Model BIT (2009). For examples of German BITs, see note 347. 463 The exceptions are the Länder of Bremen and Schleswig-Holstein (§ 1 I BremPolG and § 162 I SchlHVwG respectively). See Schenke, W.-R. (2009), op cit., p. 32. 464 OECD (2009), op cit., p. 9, incl. ft 36, with citations. 465 Ibid. and Burke-White, W. W. and Staden, A. von (2008), op cit., p. 359-360. 466 OECD (2009), op cit., p. 10, Burke-White, W. W. and Staden, A. von (2008), op cit., p. 357, incl. ft. 225 with literature, also p. 359.

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Party’s police powers to ensure public health and safety’467. Another related functional position is occupied by the cognate term ‘public policy’468, defined in Black’s Law Dictionary as ‘[c]ommunity common sense and common conscience, extended and applied throughout the state to matters of public morals, health, safety, welfare, and the like’469. It is to be noted that the same legal dictionary, a dictionary of ‘the Terms and Phrases of American and English Jurisprudence’ only, does not contain the term ‘public order’470. Ordre public is also attributed in English by ‘law and order’471 and sometimes it is not translated at all and the French term is employed instead472. But, despite these definitional nuances, in investment law, public order appears to be the dominant English-language equivalent of ordre public473 – in an approach also sometimes adopted by the ICJ474. So what is to be understood by the term public order (ordre public) or public policy? On the authority of the Court of Justice of the European Union (CJEU), ordre public presumes ‘the existence, in addition to the perturbation

467 See for example, letters of submittal of the US-Lithuania BIT, US-Jamaica BIT and US-Mongolia BIT. 468 See Burke-White, W. W. and Staden, A. von (2008), op cit., p. 357, incl. ft. 225, with further bibliography and p. 359. For some examples outside investment law, see Articles 36, 45, 52, 65 and 202 TFEU. 469 Ibid. 470 Black, H.C. et al. (eds) (1990), Black’s Law Dictionary, 6th edn, St. Paul, Minn.: West Publishing Co. 471 E.g. Protocol to the Germany-Russia BIT (1989), at point (2)(c) (English language version non-authentic); also Articles 4 TEU and 72, 276 and 347 TFEU. 472 This is the case of the ICJ, in Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), Judgment, 4 June 2008, ICJ Reports 2008, p. 177 (hereinafter Djibouti v. France), (authoritative version: French). 473 E.g. compare the English- and French-language versions of respective Article 3(2) of the BITS between BLEU and Azerbaijan (2004), Belarus (2002), China (1984), Bosnia and Herzegovina (2004), Mauritius (2005) and Zambia (2001). Compare also the English-language version of Article 3(2) German Model BIT and its French-language equivalent in Article 3(2) Germany-Guinea BIT (2006). 474 See e.g. ICJ, Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Merits, Judgment, ICJ Reports 2010, p. 639 (French language: authoritative version); ICJ, Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment, ICJ Reports 2009, p. 213 (English language text: authoritative version); ICJ, Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), Judgment, ICJ Reports 2005, p. 168 (English language text: authoritative version); ICJ, Legality of Use of Force (Serbia and Montenegro v. Germany), Preliminary Objections, Judgment, ICJ Reports 2004, p. 720 (English language text: authoritative version).

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of the social order which any infringement of the law involves, of a genuine and sufficiently serious threat to the requirements of public policy affecting one of the fundamental interests of society.’475 Although this interpretation comes from the EU law context, it is not dissimilar to express guidance on the meaning of public order (ordre public) sometimes incorporated in investment treaties. For example, the 2009 ASEAN CIA, Norway’s Draft Model BIT and a number of BITs concluded by Japan contain a public order exception specifying that the clause ‘may be invoked only where a genuinely and sufficiently serious threat is posed to one of the fundamental interests of society’476. In a recent award, the adjudicating tribunal found the ordinary and primary meaning of the expression ‘public order’ (as of the concept of ‘ordre public’ in French public law) to be a term broadly synonymous with ‘public peace’, which may be threatened in case of insurrections, riots and other violent disturbances of the peace477. A government act necessary for the preservation or restoration of ‘civil peace and the normal life of society […] to prevent and repress illegal actions and disturbances that may infringe such civil peace and potentially threaten the legal order, even when due to significant economic and social difficulties’ would qualify as falling within the scope of an exception for the maintenance of public order478. Public order (ordre public) may also be subject to other interpretations in the international legal order, such as when invoked in the context of recognition or enforcement of awards under the New York Convention479. Although the New York Convention appears to suggest a national understanding of ordre public applied to international awards480, the concept is also

475 CJEU, Case 30-77 Régina v. Pierre Bouchereau [1977] ECR 1999, para. 35. 476 E.g. Article 15(1)(d) Japan-Vietnam BIT. The same provision is included in a ‘note’ in the main text of Article 19(1)(b) Japan-Peru BIT and 15(1)(b) Colombia-Japan BIT. See further ft. 7 to Article [24] Norwegian Draft Model BIT, ft. 12 to Article 17 ASEAN CIA; also ft. 22 to Article 20 ASEAN-Korea FTA. 477 Continental Casualty Award, op cit., para. 174. 478 Continental Casualty Award, op cit., para. 174. 479 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), adopted on 10 June 1958, entered into force on 7 June 1959. Article V(2)(b) New York Convention provides that a state may refuse recognition and enforcement of an arbitral award, if ‘[t]he recognition or enforcement of the award would be contrary to the public policy [ordre public in the French text, equally authentic] of that country’. 480 World Duty Free Company Limited v. Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006 (hereinafter World Duty Free Award), para. 138.

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known as international public policy (ordre public international)481, interpreted as ‘an international consensus as to universal standards and accepted norms of conduct that must be applied in all fora’482. This perspective also casts light on the concept’s affiliation with other formulations that comprehend incommensurable interests or ‘universal values’, such as ‘good morals’ or ‘ethics of international trade’483. The universality of the rule itself, such as of a particular interpretation of public order (ordre public), is not considered a sine qua non and transnational regional rules may also find acceptance in this context484. Given the foregoing discussion and the diverse meanings attributed to public order (ordre public), the term’s indeterminacy is effortlessly exposed. The precise wording and context of each provision needs, of course, to be taken into account, as well as its potential accompaniment by other terms or explanatory notes, that reveal the parties’ intentions. Nonethless, a ‘use with caution’ caveat is appropriate for this term that, like the previously-examined essential security interests, may on occasion prove an interpretive minefield. D. Regulation in the public interest The final regulatory interest explored in this chapter is the public interest, a concept that appears to be closely associated with the right to regulate, in general, – the two are often invoked in tandem and no distinction is made between a generic right to regulate and a right to regulate in the public interest485 – and with general exceptions clauses modelled after Article XX

481 World Duty Free Award, op cit., para. 138, and further para. 139; see also Lalive, P. (1986), Transnational (or Truly International) Public Policy and International Arbitration, ICCA Congress Series n°3, p. 260, further citing Derains. 482 World Duty Free Award, op cit., para. 139. 483 World Duty Free Award, op cit., para. 141, further citing Abdulhay Sayed. 484 Gaillard, E. (1995), Trente ans de Lex Mercatoria – Pour une application sélective de la méthode des principes généraux du droit, JDI 122, op cit., paras 33 et seq. 485 E.g. see UNCTAD (2003a), op cit., p. xvii, 171; UNCTAD (2003c), op cit., para. 57; World Trade Organization (2001), Doha Ministerial Declaration, adopted on 14 November 2001. WT/MIN(01)/DEC/1, 20 November 2001, para. 22; Markert, L. (2011), op cit, passim; BG Group Plc. v. Argentina, UNCITRAL, Final Award, 24 December 2007 (hereinafter BG Award), para. 298; Outlines of the Trans-Pacific

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GATT, in particular 486. This section explores the public interest as a regulatory interest. The pertinent phrases and locutions are revealing. Sometimes, the term employed is the ‘public interest’487, an unqualified collective noun defined as ‘[t]he people’s general welfare and well being; something in which the populace as a whole has a stake’488. At the national level the public interest may be thus explained as a nation’s general welfare and well-being. But the term is also found as a collective noun qualified by a list of specific interests489 or used to denote individual public interests, directly enumerated in an IIA without reference to the collective ‘public interest’490. Broadly speaking, essential security interests are public interests, and so is the protection of the public order or the maintenance of international peace and security491. Staying clear of raising new definitional questions that no doubt will be difficult to address satisfactorily with any brevity, for present

486 487

488 489 490 491

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Partnership Agreement, op cit., under the section: Legal Texts, Investment; Press Release: US Department of State, United States, European Union Reaffirm Commitment to Open, Transparent, and Non-Discriminatory Investment Policies, 10 April 2012 http://translations.state.gov/st/english/texttrans/ 2012/04/201204103589.html#ixzz20zNCyO8h. See further, indirectly: Weiler, T. (2010), Preliminary legal opinion on Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law, Report #1 for Physicians for a Smoke Free Canada, 28 July 2010, passim; Ruggie, J. (2010), op cit., para. 23. Feldman Award, op cit., para. 103, Saluka Partial Award, op cit., paras 305 et seq., Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/ 06/18, Decision on Jurisdiction and Liability, 14 January 2010 (hereinafter Lemire Decision on Jurisdiction and Liability), para. 273. See Chapter VII, The right to regulate as a general regulatory clause. Typically in expropriation provisions, e.g. Article 6 Dutch Model BIT (2004), Finnish Model BIT (2002), Article 7(1) Austrian Model BIT (2011). But see also Article 4(1) BLEU-China BIT (1984), Article 20(2) ECT, Article 21(2) ASEAN CIA (2009), Article 19 US Model BIT (2012), Outlines of the Trans-Pacific Partnership Agreement, op cit., Under the section: Legal Texts, Investment. Susan Ellis legal (ed.) (2006), Webster’s New World Law Dictionary, Hoboken, New Jersey: Wiley. See Article [3](1), ft. 2 Norwegian Draft Model BIT (2007) (‘legitimate policy objectives of public interest such as the protection of public health, safety and the environment’) and Article 4.6(1) EFTA-Hong Kong FTA (2011). E.g. Article 18(1) Canadian Model BIT (2012), Article [24] Norwegian Draft Model BIT (2007). See Wolfrum, R., Stoll, P.-T. and Feinäugle, C. (eds) (2008), WTO – Trade in Services, Max Planck Commentaries on World Trade Law, Leiden: Martinus Nijhoff Publishers, p. 342, on essential security interests.

D. Regulation in the public interest

purposes, the right to regulate in the public interest is understood to encompass regulation with a basis other than a state of necessity, national security or the public order492. It is quite apparent that the borderline between the latter and the public interest as described is a thin one and the frontier is not watertight. Such fluidity is discernible, for instance, in the case of public order, sometimes found in general exceptions clauses modelled after Article XX GATT493, or in essential security interests exceptions subject to a chapeau494. The practice of including public interests in new generation treaties, especially in clauses modelled after Article XX GATT, points to a common ground. Ordinarily, these provisions permit digressions from substantive BIT protections when they are necessary for the protection of human, animal or plant life or health, the protection of national treasures of artistic, historic or archaeological value, the environment, conservation of exhaustible natural resources and compliance with laws not inconsistent with the IIA495. The European Union has its own list of interests and values that it is constitutionally required to protect in EUIAs496. This list is drawn from the guiding principles of the EU’s external action497 and comprises, inter alia, democ-

492 See also the similar approach adopted in Markert, L. (2011), op cit., p. 150. 493 E.g. Article 17(1)(a) ASEAN CIA, Article 14(2) Finnish Model BIT, Section VI, General Exceptions, para. 3 Draft MAI, Article [24](i) Norwegian Draft Model BIT. Cf. Article 14(2) Finland-Kyrgyzstan BIT; Article 14(2) Finland-Belarus BIT. 494 On this topic, see Chapter VII, The chapeau and national security exceptions. 495 E.g. Article 18(1) Canadian Model BIT (2012), Article [24] Norwegian Draft Model BIT (2007.). 496 Bungenberg, M. (2013), Preferential Trade and Investment Agreements and Regionalism, in Hofmann, R., Tams, C. and Schill, S. (eds), Preferential Trade and Investment Agreements: A New Ordering Paradigm for International Investment Relations? Nomos. 497 Article 21 TEU and Article 205 TFEU.

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racy, the rule of law, human rights498, respect for human dignity and the principles of equality and solidarity, sustainable development, protection of the environment, security, preservation of peace and good global governance499. The protection of public goods is also separately anchored in other primary EU law. Apart from the European Convention of Human Rights, to which the EU will accede500, and the legally binding Charter of Fundamental Rights of the European Union (CFREU)501, culture502, public health503, the

498 The significance of human rights in the investment context is easily revealed by the number of pertinent commentaries. E.g. see the dedicated publications Dupuy, P.M., Francioni, F. and Petersmann, E.-U. (eds) (2009), Human Rights in International Investment Law and Arbitration, NY: OUP; Kriebaum, U. (ed.), (2013), Aligning Human Rights and Investment Protection, TDM 10 (1) and Dumberry, P. and Dumas-Aubin (2013), How to Impose Human Rights Obligations on Corporations under Investment Treaties? Pragmatic Guidelines for the Amendment of BITs, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2011-2012, NY: OUP. See also Alvarez, J. E. (2011a), op cit., p. 370 et seq.; Kulick, A. (2012), op cit., p. 269-306. A particular example relating to state regulatory freedom vis-à-vis investment protection and human rights is the Piero Foresti and others v. South Africa, ICSID Case No. ARB(AF)/07/1 (hereinafter Piero Foresti case), repeatedly evoked in the Report of the UNSRSG on the issue of human rights and transnational corporations and other business enterprises, John Ruggie (e.g. Protect, Respect and Remedy: a Framework for Business and Human Rights. A/HRC/8/5 (7 April 2008), para. 12, Business and human rights: Towards operationalizing the “protect, respect and remedy” framework. A/HRC/11/13 (22 April 2009), para. 30, ft. 32 and Business and Human Rights: Further steps towards the operationalization of the “protect, respect and remedy” framework. A/HRC/14/27 (9 April 2010), para. 21). 499 Article 21 TEU and Articles 205 and 207(1) TFEU. See also: European Commission (2010a), op cit., p. 9; European Parliament (2011b), op cit. and European Parliament (2011a), op cit.; see further Bungenberg, M. (2010), op cit., p. 127-128 and passim; Bungenberg, M. (2008), Centralizing European BIT Making under the Lisbon Treaty, Biennial Interest Group Conference in Washington DC Paper, p. 13, 21; Bungenberg, M. (2013), op cit.; Markert, L. (2011), op cit., p. 145. See further Chapter III, Developments at the collective level. 500 Article 6(2) TEU. At the time of writing, the CJEU needs to give its opinion on a draft accession agreement. See Press Release: Council of Europe, Milestone reached in negotiations on accession of EU to the European Convention on Human Rights, DC041(2013), Strasbourg, 5 April 2013. 501 OJ C 83/02, 30.3.2010. See Article 6(1) TEU and Declaration concerning the Charter of Fundamental Rights of the European Union, annexed to the Treaties. 502 Article 167 TFEU. 503 Article 168 TFEU.

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environment504, but also consumer protection505 equally figure in the Treaty on the Functioning of the European Union as public goods that need to be safeguarded. By way of a concluding remark, public interests figure with increasing frequency in new IIAs and will inevitably be invoked in investor-state dispute settlement proceedings. Recent cases, such as the already mentioned Vattenfall506 and Philip Morris507 sets of arbitrations, raise poignant questions around which government measures fall within the sphere of that which is permissible and indeed desirable for a society and their consequent interface with state commitments undertaken within investment law. E. Concluding remarks This chapter has sketched the regulatory interests that most commonly are found in IIAs with a view to demonstrating the interpretive difficulties confronting tribunals when some of these terms come into play and offering some definitional clarifications. Essential state security is probably the most important regulatory interest, and the discussion has considered it in its variations. Applicable in principle to economic crises as well as economic security, it is uncertain whether in practice it will prove an adequate state defence in such circumstances. The chapter also reviewed the issue of essential security interests and access to strategic industries, essential interests, circumstances of extreme emergency and the two-pronged option for international peace and security. Two further regulatory interests were examined: public order (ordre public), subject to variable definitions, and regulation in the public interest. As was signalled at the beginning of this chapter, the definition of these terms is crucial for the right to regulate, in that the latter’s scope ultimately turns on how these interests are interpreted in arbitral jurisprudence. Having examined the questions of definition here, a later analysis508 will focus on the modalities of their specific incorporation in IIAs.

504 505 506 507 508

Article 191 TFEU. Article 169 TFEU. Vattenfall I, op cit. and Vattenfall II, op cit.. Philip Morris v. Uruguay, op cit. and Philip Morris v. Australia, op cit. Especially in Chapters VII-IX.

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In the attempt to enhance their regulatory freedom, states may dispose of positive language on regulatory interests incorporated in investment treaties. Strictly speaking, this complementary option does not afford states a right to regulate but may encourage an interpretation that balances investor rights against host state interests. This chapter considers this significant element in the search for regulatory flexibility usually discussed with reference to policy space. The first section offers an overview of general positive language in IIAs incorporating regulatory interests, while the two sections that follow centre on particular expressions of positive language: the first one focuses on the so-called ‘declaratory right to regulate’, a formulation often involving the ability of a contracting party to ensure that investment activity in its territory is conducted in a manner sensitive to specific public policy concerns; the second one explores positive language in the preamble, an interpretative tool approximating a genuine right to regulate. A. Positive language Positive language is language on regulatory interests that does not create legally enforceable rights or obligations509. In the absence of provisions offering an independent right to regulate, positive language may prove a legitimate method of addressing the balance between public and private interests. Even present an express right to regulate, positive language may perform an auxiliary function by complementing or emphasising the weight to be given to specific public interests510. However, mere positive language does not create host state policy space511 nor does it necessarily deter regulatory chill. Ordinarily incorporated in the preamble or the main body of the treaty512, its provisions establish ‘soft’ obligations513 – also described as

509 510 511 512 513

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E.g. see use of the term in UNCTAD (2007b), op cit., p. xiii, 92, 142. Generally ibid., p. 92, 142. See ibid., p. 92, 142. Ibid., p. 142. See Newcombe, A. and Paradell, L. (2009), op cit., p. 509.

A. Positive language

‘best efforts’ commitments514 – offering states a positive interpretative presumption that their interests will more likely be taken into account515. The current section concentrates on two principal methods of formulating positive language: first, positive language as a host-state ‘obligation’ (positive language as a host state ‘right’, namely in the form of the ‘delaratory’ right to regulate, is examined in the following section) and secondly, positive language as an (indirect) investor ‘obligation’, namely through the incorporation of CSR standards. In a third step, the section appraises whether selecting the first or the second approach may have a variable influence on host state policy space. More often than not, positive language is drafted as a host state ‘obligation’. A frequently-encountered provision states that the contracting parties shall avoid relaxing specific policy standards in order to attract foreign investment, in an endeavour to ‘address concerns about a so-called regulatory ‘race to the bottom’’516. This type of clause is often accompanied by elaborate assurances or commitments relating to this non-lowering of standards. An example is offered by Article 15 of the Canadian Model BIT. The provision, entitled Health, Safety and Environmental Measures stipulates: ‘The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate from, those measures to encourage the establishment, acquisition, expansion or retention in its territory of an investment of an investor. If a Party considers that the other Party has offered such an encouragement, it may request consultations with the other Party and the two Parties shall consult with a view to avoiding the encouragement.’

It is of interest to note the possibility of a request for consultations, which enhances the perception of the provision as a ‘soft’ obligation517 and, notably, the fact that it is excluded from the Canadian Model BIT’s arbitration clause518. The US Model BIT offers further opportunities for ‘public participation’ regarding any matter arising under its environmental and labour articles519, likewise barred from ISDS520. Clauses such as the above insisting

514 515 516 517 518 519 520

UNCTAD (2007b), op cit., p. 92; Muchlinski, P. (2009a), op cit., p. 48. See Article 31(1)-(2) VCLT and below, The right to regulate and the preamble. Newcombe, A. and Paradell, L. (2009), op cit., p. 509. Ibid. Article 21 Canadian Model BIT (2012). Articles 12(7) and 13(5) US Model BIT (2012). Article 24(1) US Model BIT (2012).

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on the non-lowering of standards are replicated, sometimes in verbatim repetition of one another, in a large number of treaties, varying the protected public interests and often focusing on labour and, especially, the environment521. There are also more expansive forms of drafting positive language as a host-state obligation. Article 5 BLEU-Mauritius BIT (2005) provides an interesting example of a lengthy provision encompassing environmental concerns. Apart from provisions on the non-relaxation of environmental standards522 and expert consultations at the request of a party for any matter falling within the scope of the article523, the clause establishes: ‘Recognising the right of each Contracting Party to establish its own levels of domestic environmental protection524 and environmental development policies and priorities, and to adopt or modify accordingly its environmental legislation, each Contracting Party shall strive to ensure that its legislation provide for high levels of environmental protection and shall strive to continue to improve this legislation.’525

And: ‘The Contracting Parties reaffirm their commitments under the international environmental agreements, which they have accepted. They shall strive to en-

521 See e.g. Article 1114(2) NAFTA, Articles 12(2),(6) and 13(2),(4) US Model BIT (2012), Articles 4 and 5(1) and 4 Austrian Model BIT (2011), Articles 5(2) and 6(2) BLEU Model BIT (2002), Article 8(5) Spain-Libya BIT, Article 26 Japan-Peru BIT, Article 74 Indonesia-Japan EPA and Article 99 Japan-India CEPA (2011), Articles 5 and 6 BLEU-Ethiopia BIT, Articles 5 and 6 BLEU-Madagascar BIT, Articles 5 and 6 BLEU-Peru BIT, Articles 5 and 6 BLEU-Serbia BIT, Article VII and VIII BLEU-Colombia BIT. For an extensive list of examples on relevant environmental language, see Gordon, K. and Pohl, J. (2011), Environmental Concerns in International Investment Agreements: a Survey. OECD Working Papers on International Investment, No. 2011/1, OECD Investment Division, p. 23-24 with footnotes, in the version available at http://www.oecd.org/dataoecd/ 50/12/48083618.pdf. 522 Article 5(2) BLEU-Mauritius BIT. 523 Article 5(4) BLEU-Mauritius BIT. 524 For an interesting comment on this type of provision relating to the establishment domestic levels of protection, see Kulick, A. (2012), op cit., p. 70-71. 525 Article 5(1) BLEU-Mauritius BIT, see also Article 6(1). For some examples in US FTAs, see also: Article 19.1 AUSFTA (2004), Article 17.1 US-DR-CAFTA (2004), Article 19.1 US-Chile FTA (2003), Article 18.1 US-Colombia FTA (2006), Article 17.1 US-Morocco FTA (2004), Article 17.1 US-Oman FTA (2006), Article 18.1 US-Peru Trade Promotion Agreement (TPA) (2006), Article 18.1 US-Singapore FTA (2003).

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sure that such commitments are fully recognised and implemented by their domestic legislation.’526

Another interesting illustration comes in the form of a newly-inserted paragraph in the 2012 US Model BIT527 to the effect that: ‘The Parties recognize that each Party retains the right to exercise discretion with respect to regulatory, compliance, investigatory, and prosecutorial matters, and to make decisions regarding the allocation of resources to enforcement with respect to other environmental matters determined to have higher priorities. Accordingly, the Parties understand that a Party is in compliance with paragraph 2528 where a course of action or inaction reflects a reasonable exercise of such discretion, or results from a bona fide decision regarding the allocation of resources.’529

Viewed from the perspective of its formulation as a host state obligation, with the apparent exception of the aforecited provision of the US Model BIT, it does not readily flow that positive language in the form discussed here enhances regulatory freedom. Nonetheless, where this language could potentially afford policy space is where a state adopts measures for the protection of the public interests enshrined therein. Could the legality of a state measure enacted for the protection of domestic health, safety, labour or the environment in derogation of substantive treaty obligations find justification in such a provision? The answer probably has to be negative, even if an adjudicating tribunal may need to take into consideration the parties’ commitment as part of the treaty context530. An alternative way of introducing positive language is to approach the issue from the point of view of the investor and to establish (indirect) investor obligations. Similarly to treaties that impose an express conditionality for investment protection that investment be made in accordance with host state laws531, requiring that investor conduct meet some criteria may be a rea-

526 Article 5(3) BLEU-Mauritius BIT, see also Article 6(3). Cf. Articles 12(1) and 13(1) US Model BIT. For some similar provisions, see respective Articles 5(3) and 6(3) BLEU-Madagascar BIT (2005), BLEU-Mauritius BIT (2005), BLEU-Peru BIT (2005) and BLEU-Serbia BIT (2004). 527 In total, the 2012 US Model BIT has added four new provisions (and five paragraphs) to the 2004 Model’s Article on Investment and Environment. 528 Paragraph 2 provides for the non-weakening of standards and non-waiving or derogating or offering to waive or derogate from environmental laws. 529 Article 12(3) US Model BIT. 530 Article 31(1)-(2) VCLT. 531 See Chapter II, Limiting the scope of investment protection.

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sonable screening method of discerning which investor ‘deserves’ to receive protection. Introducing positive language in the form of investor obligations, finds its culmination in the inclusion of CSR standards in an IIA532. There are various possible approaches to the formulation and content of these standards, facilitated by a panoply of relevant international instruments533. CSR

532 On CSR in investment law, and on the related notion of due diligence, see generally work of the OECD at http://www.oecd.org/department/ the 0,3355,en_2649_33765_1_1_1_1_1,00.html; UNCTAD (2011a), op cit., p. 111-122; UNCTAD (2001a), Social Responsibility, UNCTAD/ITE/IIT/22, UNCTAD IIA Series, NY & Geneva: UN; see also the European Commission’s page on CSR: http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-responsibility/index_en.htm and European Commission (2006), Communication ‘Implementing the partnership for growth and jobs: Making Europe a pole of excellence on corporate social responsibility’, COM(2006) 136 final, Brussels, 22.3.2006. See further Ruggie, J. (2008b), Clarifying the Concepts of ‘Sphere of Influence’ and ‘Complicity’, Report of the UNSRSG on the issue of human rights and transnational corporations and other business enterprises, A/HRC/8/16, 15 May 2008; Ruggie, J. (2011), Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework. Report of the UNSRSG on the issue of human rights and transnational corporations and other business enterprises (Endorsed by the UN Human Rights Council on 16 June 2011), A/HRC/17/31, 21 March 2011; Muchlinski, P. (2008), Corporate Social Responsibility, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds), The Oxford Handbook of International Investment Law, NY: OUP. 533 Consideration could be given for instance to including binding references to the following instruments: the OECD Guidelines for Multinational Enterprises, op cit.; the UN Global Compact’s Ten Principles (See http://www.unglobalcompact.org/ AboutTheGC/TheTenPrinciples/index.html.); the International Labour Organization’s (2006) Tripartite Declaration (International Labour Organization (2006), Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (MNE Declaration) – 4th edn, Geneva: International Labour Office). For more instruments, see UNCTAD (2011a), op cit., p. 111 et seq.

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standards are increasingly included in IIAs534 and have also started to make their way in a number of model treaties535. Norway’s 2007 Draft Model BIT is an example of a treaty sensitive to CSR concerns. Apart from a fleeting mention of corporate social responsibility in the preamble, its Article [32] establishes that the parties shall ‘encourage investors to conduct their investment activities in compliance with the OECD Guidelines for Multinational Enterprises and to participate in the United Nations Global Compact.’ Mere encouragement to conduct investment activity in compliance, e.g., with the OECD Guidelines is a weak approach and it is, again, stated as a host state obligation that only indirectly bears upon the investor. As far as Norway is concerned, the obligation is in any case extant, since the state has committed itself as an OECD Member to comply with and promote the Guidelines (OECD Members as well as Argentina, Brazil, Colombia, Egypt, Latvia, Lithuania, Morocco, Peru, Romania and Tunisia have undertaken to comply with the Guidelines536). In this respect, the reference to the OECD Guidelines in the Draft Model BIT serves to reiterate the importance of CSR and, simultaneously, address the obligation to comply with the Guidelines to potential treaty partners outside the OECD537. Canada’s Model BIT also encompasses a provision on CSR. Its Article 16 on Corporate Social Responsibility establishes that: ‘Each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as

534 UNCTAD (2011a), op cit., p. 119-120. See also Article 12.15 bis of the leaked TPPA investment chapter draft, op cit.; Article 16 Canadian Model BIT (2012), but cf. Article 21 of the same model treaty. The OECD Draft MAI had also envisaged the incorporation of the OECD Guidelines in the agreement, see Section I. (General Provisions) Preamble and Section X (Relationship to other international agreements) The OECD Guidelines for Multinational Enterprises, paragraph 1 Draft MAI. The European Parliament has also reiterated the need for the inclusion of a corporate social responsibility clause in every future EUIA (European Parliament (2011a), op cit., para. 28), and the directive for the negotiation on the TTIP of June 2013, op cit., includes such a consideration in para. 32. 535 See UNCTAD (2011a), op cit., p. 120, with examples. See also Preamble to the Austrian Model BIT (2011), cited in part below, The right to regulate and the preamble. 536 On the OECD Guidelines and adhering countries, see http://www.oecd.org/about/ 0,3347,en_2649_34889_1_1_1_1_1,00.html. 537 See also Government of Norway (2007), op cit., point 4.6.3.

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statements of principle that have been endorsed or are supported by the Parties. These principles address issues such as labour, the environment, human rights, community relations and anti-corruption.’

To date compliance with CSR standards remains voluntary538. But incorporating investor obligations in a treaty may be effective a fortiori if such standards are endowed with legally binding force, culminating in ‘arbitrable’ investor obligations539. Although in this set-up the state is still unable to file a claim against an investor, since the latter has not offered in abstracto its consent to arbitration540, from the moment that such consent is present, to wit, as soon as arbitration proceedings are instituted by the investor541, the state may invoke the latter’s non-compliance with a binding CSR standard. Particular care needs to be taken in this case so as not to unintentionally limit eventual claims to disputes concerning state obligations542. It is possible that CSR standards, or other investor obligations, in the absence of the possibility of state-investor arbitration, may be better incorporated in instruments other than an investment treaty, for example in national legislation, with the obligation to comply with such standards as part of the definition of covered investment543. Another consideration would be to link respect of these standards to the legality or arbitrability of an investment544. That said, a short mention of CSR standards in the IIA can certainly do no harm. A final consideration in this context is whether the choice between formulating positive language as a host state obligation – or ‘right’ – or as an (indirect) investor obligation may have a variable impact on regulatory freedom. It appears that language introducing CSR standards may weigh less than language conditioning, for instance, investment promotion and protec538 See UNCTAD (2010b), op cit., p. 88. 539 E.g. cf. Article 28(9) Investment Agreement for the COMESA Common Investment Area (COMESA CIA) (2007). 540 See Chapter IV, Arbitration as a perceived threat to state regulatory freedom. See also Muchlinski, P. (2009a), op cit., p. 48. 541 Schreuer, C. et al (2009), op cit., p. 211 et seq., 217 et seq., see also p. 203. 542 See Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011 (hereinafter Roussalis Award), paras 864-872. Cf. W. M. Reisman’s partial dissent (Declaration) attached ibid. 543 Cf. Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 25. See also Alvarez, J. E. (2010a), op cit., p. 159-160, on the question of including investor duties in investment agreements, in particular labour, human rights and environmental standards. 544 On investment legality, see also Schill, S. W. (2012), op cit.

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tion on the non-relaxation of environmental standards or the continued pursuance of sustainable development545. The difference consists not in a variance in the legal force of each respective provision, but in their de facto use. CSR standards create obligations for investors without creating a positive presumption for host state regulatory activity, unless the latter concerns investor compliance with these standards546. On the contrary, a provision that environmental standards shall not be lowered, may involve directly the ability of a state to adopt measures to protect the environment547. In this scenario, CSR standards are then less likely to disqualify an investor from successfully invoking protection standards against a public measure, while policy space for environmental regulation may well have this effect. Ultimately, although positive language does not on the whole offer states concrete policy space and, therefore, does not substitute an express right to regulate, it could prove more than a mere exhortatory statement. In other words, it may function as a complementary element548, more or less so depending on its particular formulation. B. ‘Declaratory’ right to regulate Despite the novelty of the term ‘right to regulate’ a provision at least professedly governing such a right, has made its way into a handful of treaties, some stretching back to the late 1990s549. The enthusiast, however, should stay put: despite appearances, these provisions are a long way from granting states regulatory freedom. The question here is of investment treaty articles often expressly entitled Right to regulate. Under the status quo, these articles appear not to embrace an exception at all550. Sounding a discordant note among treaty provisions for policy space,

545 E.g. see examples of positive language in UNCTAD (2007b), op cit., p. 92 and compare these with the aforecited CSR language in Norway’s Draft Model BIT. 546 Par excellence, where combined with a ‘declaratory’ right to regulate, on which see below, ‘Declaratory’ right to regulate. 547 See also UNCTAD (2007b), op cit., p. 92. 548 Treaties concerned with reserving policy space often combine an explicit right to regulate with other positive language. E.g. see Norway’s 2007 Draft Model BIT. 549 E.g. Article 16-14(1) Mexico-Nicaragua FTA (1997) or Para. 3, Annex ‘Package of Proposals for Text on Environment and Labour’ (replaced, see note 562), Draft MAI, op cit. 550 Robert-Cuendet, S. (2010), op cit., p. 55.

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this construction has been described as a ‘mere declaratory right to regulate’551. Articles incorporating such a ‘right’ fall into two categories, one exemplified by Article [12] of Norway’s Draft Model BIT (2007) and the other by Article 4.6 of the EFTA-Hong Kong FTA (2011). These will be examined in turn. Article [12] of Norway’s Draft Model BIT, explicitly entitled Right to regulate, provides: ‘Nothing in this Agreement shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to health, safety or environmental concerns.’

Several issues appear remarkable about this article. In the first place, if it did provide for a genuine right to regulate, its scope would be very wide indeed: the freedom offered the contracting parties would encompass any measure they considered appropriate, thus also unlocking Pandora’s box of difficult questions surrounding the self-judging nature of such provisions552. But moving away from what is no more than a pure counterfactual, one notes that in fact the article does not offer the host state any amount of regulatory freedom the latter does not already possess553; it allows the state to take measures consistent with the investment treaty. Enshrined then in tautological language554, the provision appears superfluous555 and its title, Right to regulate, is revealed as a misnomer. It is further not readily apparent that such an article could at least serve as a counterweight to an overly investorfriendly preamble statement, allowing for the legitimate interests of the host state to be taken into account, since such an interpretation would fly in the face of the very letter of the article, which explicitly states that the measure needs to be consistent with the BIT556. By the same token, it is arguable whether the provision would ‘‘tilt the balance’ in favour of [health, safety and] the environment by establishing a presumption that normal measures

551 Markert, L. (2011), op cit., p. 149-150. 552 On self-judging clauses, see Chapter VIII, ‘The State considers’ – Self-Judging clauses. 553 Markert, L. (2011), op cit., p. 150; Newcombe, A. and Paradell, L. (2009), op cit., p. 509. See further Robert-Cuendet, S. (2010), op cit., p. 53. 554 Newcombe, A. and Paradell, L. (2009), op cit., p. 509. 555 Markert, L. (2011), op cit., p. 150; Newcombe, A. and Paradell, L. (2009), op cit., p. 509; see also Muchlinski, P. (2009a), op cit., p. 45. 556 But cf. Newcombe, A. and Paradell, L. (2009), op cit., p. 509.

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do not violate [the treaty’s] investment obligations’557. Indeed, this formulation has been critiqued as simply expressing the primacy of the investment agreement and imposing a constraint on ‘any right to regulate’558. An alternative justification may be that such a provision is ‘explanatory’559 and serves as ‘a tool for sending a message to civil societies that the contracting parties take environmental concerns into account’560. In this light, it appears to impose ‘soft’ obligations on investors or, in other words, to introduce CSR standards into an agreement through the back door561. Nevertheless, what may be easily overlooked is the object of this provision, which the misleading title diverts from. The purpose of Article [12] is, in its own terms, to ensure that investment activity is conducted in a manner congruent with health, safety or environmental concerns. Therefore, the article does not address the freedom of the state to regulate for the protection of health, safety, or the environment, rather it is there to assist states in making recalcitrant investors toe the line of health, safety and environmental regulation. In this sense, it also becomes apparent that, even if the provision did grant a right to regulate, its scope would not be as wide as prima facie premised. Notwithstanding the provision for ‘any measure’ that the party ‘considers appropriate’, the effect of these terms is immediately curbed since the targeted government measures are only those aiming to ensure that investment activity is undertaken in a particular manner. Provisions embodying a ‘declaratory’ right to regulate are commonly encountered in recent IIAs with respect to environmental concerns562 or labour regulation563. A proposal for a similarly-styled right to regulate provision

557 MAI Commentary, op cit., p. 28. 558 Mann, H. (2003), op cit., p. 219, emphasis added. 559 UNCTAD (2007b), op cit., p. 89, 99; see further Newcombe, A. and Paradell, L. (2009), op cit., p. 509. 560 Ibid., p. 89, 99. 561 On this, see also above, Positive language. 562 E.g. Article 12(5) US Model BIT (2012), Article 1114(1) NAFTA, Article 11.11 AUSFTA (2004); Canadian BITs prior to the 2004 Canadian Model BIT (For examples, see Gordon, K. and Pohl, J. (2011), op cit., p. 16, ft. 28) and in newer Canadian treaties (e.g. Art. XVII(2) of the 2009 Canada-Latvia BIT); Mexican FTAs (e.g. Article 11.17(1) Mexico-Peru FTA (2011), Article 16-14(1) MexicoNicaragua FTA (1997) and Article 11.16(1) Mexico-Central America FTA, which replaced the Mexico-Nixaragua FTA); see also Article 8(4) Spain-Libya BIT. For further examples beyond Canada see also UNCTAD (2001b), Environment, UNCTAD/ITE/IIT/23, UNCTAD IIA Series, NY & Geneva: UN, p. 22-23. 563 E.g. Article 13(3) US-Uruguay BIT (2005), see also Article 12(2), ibid.

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was also advanced during the MAI negotiations under the aegis of the OECD564. A more daring exception for environmental regulation is found in the Colombian Model BIT565 and in the 2010 UK-Colombia BIT566. Indeed the exception is so daring that at first it reads like a mistake: ‘Nothing in this Agreement shall be construed to prevent a Party from adopting, maintaining, or enforcing any measure that it considers appropriate to ensure that an investment activity in its territory is undertaken in a manner sensitive to environmental concerns, provided that such measures are non-discriminatory and proportionate to the objectives sought.’567

What is blatantly missing from this article is the ‘otherwise consistent with’ proviso. Another noteworthy aspect is the introduction of the concept of proportionality, a criterion more often explicitly found in human rights law568. The ECT likewise eschews the pitfalls of the ‘otherwise consistent with’ formula569. In contrast to the above provisions, some treaties contain a rather infrequent type of clause, introducing the second method of drafting a ‘declaratory’ right to regulate. The cardinal facet of this second drafting model is that, while resembling the articles discussed so far, unlike them, it does not target the manner in which investment activity is conducted on host state territory, and approximates a broad exception clause but for the requirement that the measures taken be consistent with the treaty. Article 4.6(1) EFTAHong Kong FTA (Right to Regulate) states that: ‘Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure consistent with this Chapter that is in the

564 Article 3 (Right to Regulate) (Annex 3) Multilateral Agreement on Investment, Report by the Chairman to the Negotiating Group, DAFFE/MAI(98)17, 4 May 1998 http://www.oecd.org/daf/mai/pdf/ng/ng9817e.pdf. See also para. 3 (Affirmation of Right to Regulate) in Annex ‘Package of Proposals for Text on Environment and Labour’ in the Draft MAI, op cit., and the debate on a very similar proposal inspired by NAFTA Article 1114(1): Proposed ‘Additional Clause’ on Labour and Environment and Package of Additional Environmental Proposals (Contribution by one delegation). See also for some criticism: MAI Commentary, op cit., p. 28. 565 Article VIII Colombian Model BIT. 566 Article VIII UK-Colombia BIT. 567 Ibid. 568 See Chapter III, WTO law, EU law and the European Convention on Human Rights. 569 Article 18(3) ECT.

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public, interest, such as measures to meet health, safety or environmental concerns and reasonable measures for prudential purposes.’570

By way of conclusion, it is suggested that, by and large, express Right to regulate clauses fall short of their ambition to introduce this right. In that the ‘otherwise consistent with’ phrasing may a contrario lead to the conclusion that any measure that is not consistent with the treaty is de iure incompatible with the obligations it imposes, this provision may conduce to a narrowing of policy space rather than the opposite. C. The right to regulate and the preamble Repository of a treaty’s object and purpose571, the preamble does not create independent legal rights or obligations572. Accordingly, regulatory interests in the preamble do not establish a veritable right to regulate. Nonetheless, they are of particular significance for host state policy space, since, by virtue of the Vienna Convention on the Law of Treaties573, the preamble may constitute an important interpretative tool574 at the arbitrator’s disposal, so much as encapsulating the treaty’s object and purpose575 as by forming part of its context576. This section will highlight some approaches to the incorporation

570 For some similar provisions, see Article 10.16(1) of the India-Korea CEPA (2009), Article 4.8 EFTA-Ukraine FTA (2010) and Article 43 EFTA-Singapore FTA (2002), the latter provision remarkably entitled Domestic Regulation. 571 Dolzer, R. and Stevens, M. (1995), Bilateral Investment Treaties, The Hague: Martinus Nijhoff, p. 20; Salacuse, J. W. (2009), op cit., p. 127; Sinclair, I. (1984), op cit., p. 128; UNCTAD (2007b), op cit., p. 3; Muchlinski, P. (2009b), The Framework of Investment Protection: The Content of BITs, in Sauvant, K. P. and Sachs, L. E. (eds), The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows, NY: OUP, p. 38. 572 Newcombe, A. and Paradell, L. (2009), op cit., p. 124, Salacuse, J. W. (2009), op cit., p. 127, Dolzer, R. and Stevens, M. (1995), op cit., p. 20; Total S.A. v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010 (hereinafter Total Decision on Liability), para. 116, UNCTAD (2007b), op cit., p. 3, Muchlinski, P. (2009b), op cit., p. 38. 573 Article 31 VCLT. 574 See further Dolzer, R. and Stevens, M. (1995), op cit., p. 20; Newcombe, A. and Paradell, L. (2009), op cit., p. 124; Salacuse, J. W. (2009), op cit., p. 127; UNCTAD (2007b), op cit., p. 3; Muchlinski, P. (2009b), op cit., p. 38; and Total Decision on Liability, op cit., para. 116. 575 Article 31(1) VCLT. 576 Article 31(2) VCLT.

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of regulatory interests in the preamble and will assess their significance for treaty interpretation in light of arbitral jurisprudence. Next to routine pronouncements on investment encouragement and protection, the preamble may host language on regulatory interests. According to some accounts, such language is gaining in importance, in view of escalating investment arbitrations and intensified public scrutiny of IIAs577. Regulatory interests in the preamble are drawn from a large pool of public policy objectives and may include, inter alia, the environment578, health and safety579, human rights580, labour standards581, sustainable development582, CSR583, cultural policies584, and anti-corruption issues585. There are various ways to embed regulatory interests in the preamble586. A statement may be included to the effect that investment protection is to be realised without compromising public policy objectives. This is the case of the Preambles to the Dutch, Finnish and Swedish Model BITs, which make express reference to the promotion of ‘internationally accepted587/recognised588/recognized589 labour standards’ and consider that ‘these objectives can be achieved without compromising health, safety and environmental measures of general application’590. The Preamble to the US Model BIT affirms as a desideratum the achievement of the treaty’s objectives ‘in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognized labor rights’, a stipulation also included in Norway’s Draft Model BIT. Recitals of the latter Model

577 578 579 580 581 582 583 584 585 586 587 588 589 590

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Muchlinski, P. (2009b), op cit., p. 38-39, UNCTAD (2007b), op cit., p. xi, 3. Preamble to Japan-Papua New Guinea BIT (2011). Preamble to US-Croatia BIT (1996). Preamble to Canada-Colombia FTA (2008). Preamble to US-Chile FTA (2003). NAFTA Preamble. Preamble to Canada-Peru FTA (2008). Preamble to Canada-Costa Rica FTA (2001). Preamble to US-Peru TPA (2006). On this topic, see also UNCTAD (2007b), op cit., p. 92 et seq. Dutch Model BIT. Finnish Model BIT. Swedish Model BIT. Preambles to the Dutch, Finnish and Swedish Model BITs. See also the similarlyworded Preambles to the Netherlands-Namibia BIT (2002) and US-Mozambique BIT.

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Treaty’s Preamble are worth citing, since they wax particularly eloquent on regulatory interests: ‘Desiring to develop the economic cooperation between the Parties; Desiring to encourage, create and maintain stable, equitable, favourable and transparent conditions for investors of one Party and their investments in the territory of the other Party on the basis of equality and mutual benefit; Desiring to achieve these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognized labour rights; Desiring to contribute to a stable framework for investment in order to maximize effective and sustainable utilization of economic resources and improve living standards; […] Emphasising the importance of corporate social responsibility; Recognising that the development of economic and business ties can promote respect for internationally recognised labour rights; Reaffirming their commitment to democracy, the rule of law, human rights and fundamental freedoms in accordance with their obligations under international law, including the principles set out in the United Nations Charter and the Universal Declaration of Human Rights; Recognising that the promotion of sustainable investments is critical for the further development of national and global economies as well as for the pursuit of national and global objectives for sustainable development, and understanding that the promotion of such investments requires cooperative efforts of investors, host governments and home governments; Recognising that the provisions of this agreement and provisions of international agreements relating to the environment shall be interpreted in a mutually supportive manner; Determined to prevent and combat corruption, including bribery, in international trade and investment; Recognising the basic principles of transparency, accountability and legitimacy for all participants in foreign investment processes’.

Another Preamble that embodies a large number of regulatory interests is that of the Austrian Model BIT. In addition to interests covered in the Norwegian Draft Model, the Austrian Preamble expands through references to international instruments, as follows: ‘Reaffirming the commitments under the 2006 Ministerial declaration of the UN Economic and Social Council of Full Employment and Decent Work, […]

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Expressing their belief that responsible corporate behaviour, as incorporated in the OECD Guidelines for Multinational Enterprises, can contribute to mutual confidence between enterprises and host countries; Emphasising the necessity for all governments and civil actors alike to adhere to UN and OECD anti corruption efforts, most notably the UN Convention against Corruption (2003); Taking note of the principles of the UN Global Compact; Acknowledging that investment agreements and multilateral agreements on the protection of environment, human rights or labour rights are meant to foster global sustainable development and that any possible inconsistencies there should be resolved without relaxation of standards of protection’.

Two issues appear particularly noteworthy about the Preamble to the Austrian Model BIT. First, it is bent towards regulatory interests and international instruments to the extent that it ‘forgets’ to expressly incorporate investment protection among its objectives591. Second, the ultimate recital quoted above determines, inter alia, that ‘investment agreements… are meant to foster global sustainable development’592, and it appears to be saying that any inconsistencies between investment agreements, on the one hand, and multilateral agreements on the protection of the environment, human rights or labour rights, on the other, should be resolved in favour of the latter (‘without relaxation of standards of protection’). The Norwegian and Austrian Preambles with their ample regulatory concerns are rare examples among bilateral investment treaties593; and one of them, Norway’s Model BIT, has failed to be adopted. Regulatory interests in the preamble are more likely to be found in Western Hemisphere comprehensive trade and investment treaties594. Yet, without having to resort to a preamble the length of the Norwegian or the Austrian Models’, embodying such regulatory interests in the preamble may prove an important element in the attempt to accommodate a balance of interests595. Although the main

591 Compare the Austrian Model BIT’s Preamble with the Preamble to the French, German, UK and US Model BITs. 592 Emphasis added. 593 E.g. cf. Preambles to Model BITs of BLEU, Finland, France, Germany, Netherlands, Sweden, and the UK. 594 For a large sample survey of these, as well as BITs, with general language on labour, environment and anti-corruption matters, see OECD (2008a), op cit., Annex 3.A1 and Annex 3.A2. 595 Markert, L. (2011), op cit., p. 160; Newcombe, A. and Paradell, L. (2009), op cit., p. 116.

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purpose of an investment treaty is the promotion and protection of reciprocal investment between the contracting parties596, rather than the preservation of regulatory space (it would be incongruous to claim the opposite, since, in any event, the parties have more regulatory space in the absence of an IIA597), it may be apposite to include regulatory interests in the preamble to ensure that investment promotion and protection are not the only considerations when interpreting a treaty. This approach is not without consequences. In the case of teleological interpretation598, typical preamble language making reference to the encouragement and protection of investment to the exclusion of other objectives will invariably conduce to an interpretation skewed in favour of the investor599 allowing little scope for the legitimate interests of a host state. In its extreme form, unadulterated reliance on such a telos may even deny the relevance of the contracting states’ intentions600 and vitiate their policy space. Investment tribunals have had ample opportunity to interpret preambles601, but in the absence of particular language on regulatory interests, these interpretations have usually been to the detriment of the host state602.

596 E.g. see Title and Preambles to France-China BIT (2007), UK-Colombia BIT (2010), US-Argentina BIT (1991); see also European Parliament (2011a), op cit., para. 15. See further: Newcombe, A. and Paradell, L. (2009), op cit., p. 122 et seq.; Salacuse, J. W. (2009), op cit., p. 1, 109 et seq.; Dolzer, R. and Stevens, M. (1995), op cit., p. 20 et seq.; Joubin-Bret, A., Rey, M.-E. and Weber, J. (2011), op cit., p. 15; Vandevelde, K. J. (2000), The Economics of Bilateral Investment Treaties, Harv Int’l L J 41 (2), p. 471; Vandevelde, K. J. (1988), Treaty Interpretation from a Negotiator’s Perspective, VJTL 21 but cf. p. 289. Also cf. Aaken, A. van and Lehmann, T. A. (2011), Investment and Sustainable Development: Developing a New Conceptual Framework, U of St. Gallen Law School L and Econ Research Paper Series No. 2011-10, p. 16 et seq.; Sornarajah, M. (2010), op cit., p. 611; also Saluka Partial Award, op cit., para. 300. 597 See introduction to Chapter II. 598 See Article 31 VCLT. 599 Dolzer, R. and Schreuer, C. (2008), op cit., p. 32; Markert, L. (2011), op cit., p. 158. 600 Sinclair, I. (1984), op cit., p. 131. Also cited in Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005 (hereinafter Plama Decision on Jurisdiction), para. 193. 601 See also Newcombe, A. and Paradell, L. (2009), op cit., p. 125. 602 E.g. Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 (hereinafter Siemens Decision on Jurisdiction), SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on

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For example, the SGS v. Philippines Tribunal determined that, since the BIT under interpretation was ‘a treaty for the promotion and reciprocal protection of investments’, intended, according to its preamble, ‘to create and maintain favourable conditions for investments’, it seemed ‘legitimate to resolve uncertainties in its interpretation so as to favour the protection of covered investments’603. Furthermore, since the 2004 Occidental case604, and in recent disputes involving the US-Argentina BIT605, consecutive tribunals have relied on preamble language providing for the desirability of fair and equitable treatment ‘in order to maintain a stable framework for investment’ to interpret the stability of the legal and business context as an essential element of the fair and equitable treatment standard606, with some awards even considering this interpretation to reveal ‘an emerging standard of fair and equitable treatment’607. The Preamble to the US-Argentina BIT has been also used to underpin a restrictive interpretation of exceptions clauses608, with the argument that, insofar as by its object and purpose the treaty is intended to apply to situations of economic hardship, an ‘interpretation resulting in an escape route’ from the obligations enounced therein cannot be reconciled with that object and

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Objections to Juisdiction, 29 January 2004 (hereinafter SGS v. Philippines Decision on Jurisdiction), Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005 (hereinafter Noble Ventures Award), MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, Occidental Exploration and Production Company v. Ecuador, UNCITRAL, LCIA Case No. UN 3467, Final Award, 1 July 2004 (hereinafter Occidental Final Award), National Grid v. Argentina, UNCITRAL, Award, 3 November 2008 (hereinafter National Grid Award), adjudicating on the basis of the UK-Argentina BIT, para. 170, CMS Award, op cit., Enron Award, op cit.; contra: Saluka Partial Award, op cit. See also Lemire Decision on Jurisdiction and Liability, op cit. SGS v. Philippines Decision on Jurisdiction, op cit., para. 116. See also Siemens Decision on Jurisdiction, op cit., para. 81 and National Grid Award, op cit., adjudicating on the basis of the UK-Argentina BIT, para. 170. But on this topic cf. Douglas, Z. (2006), Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex. Arb Int’l 22 (1), p. 51. Occidental Final Award, op cit. E.g. LG&E Decision on liability, op cit, Enron Award, op cit., CMS Award, op cit. Occidental Final Award as cited in the Total Decision on Liability, op cit, para. 183, LG&E Decision on liability, op cit, para. 124, Enron Award, op cit., paras 259-260, CMS Award, op cit., para. 274; see also National Grid Award, op cit., para. 170. LG&E Decision on liability, op cit., para. 125, Enron Award, op cit., para. 260. Enron Award, op cit., para. 331; Sempra Award, op cit., para. 373.

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purpose609. However, such an interpretation generally finds no buttress in the treaty text or in the VCLT610, even where preambles are oblivious to questions other than investment promotion and protection611. Despite some notable exceptions, such as that of the Saluka Partial Award612 and, to some extent, the Lemire Decision613, both of which will be discussed later in the book614, arbitral precedent indicates that careful drafting of the preamble may be required to prevent arbitrators from focusing solely on investment promotion and protection615. The truth of this statement is obvious, for example, when juxtaposing some of the above-cited interpretations and the more poised approach of the S.D. Myers Partial Award, deciding in the face of, inter alia, environmental language in the NAFTA Preamble616. In sum, incorporating regulatory interests in the preamble may contribute to a more balanced treaty interpretation, one that takes on board the state’s regulatory interests alongside the interests of the investor. It is further noted that this approach has the added advantage of retaining the usual structure 609 Enron Award, op cit., para. 331; Sempra Award, op cit., para. 373. 610 Article 31 VCLT. 611 On the topic, see Qureshi, A. H. (2009), The Economic Emergency Defence in Bilateral Investment Treaties: A Development Perspective, in Binder, C., Kriebaum, U., Reinisch, A. and Wittich, S. (eds), International Investment Law for the 21st Century – Essays in Honour of Cristoph Schreuer, NY: OUP, p. 634, Newcombe, A. and Paradell, L. (2009), op cit., p. 116, 485 and Newcombe, A. (2011), op cit., p. 363.) A narrow interpretation of exceptions clauses also stems from GATT jurisprudence, see for instance GATT Panel Report, United States – Restrictions on Imports of Tuna, op cit., para. 5.22 and GATT Panel Report, Canada – Import Restrictions on Ice Cream and Yoghurt, L/6568, adopted 5 December 1989, BISD 36S/68, para. 59. Arbitral tribunals have further invoked GATT jurisprudence, see Canfor Corporation v. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Decision on Preliminary Question, 6 June 2006, para. 187. It appears however that in newer jurisprudence, the WTO Appellate Body is rejecting the restrictive interpretation of general exceptions clauses. See Newcombe, A. and Paradell, L. (2009), ibid., p. 486-488 and Newcombe, A. (2011), op cit., p. 363-364. Qureshi, A. H. (2009), ibid., also notes that the restrictive interpretation of exceptions falls outside the Vienna Convention rules and equally cites in this respect WTO Appellate Body jurisprudence. 612 Saluka Partial Award, op cit., para. 300. 613 Lemire Decision on Jurisdiction and Liability, op cit., paras 272 et seq. 614 Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state. 615 See also Markert, L. (2011), op cit, p. 160. 616 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award, 13 November 2000 (hereinafter S.D. Myers Partial Award), para. 220.

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of the IIA617 while granting regulatory interests an interpretative scope that extends to the entire treaty. The downside of course, at least of including regulatory interests exclusively in the preamble, is that it creates no concrete or legally enforceable right to regulate but a mere interpretative device618. D. Concluding remarks Chapter VI examined the incorporation of positive language in IIAs, as an ancillary means of safeguarding host state policy space by setting in place ‘soft’ obligations that encourage a regulatory interests-friendly interpretation of IIA provisions. Positive language may be drafted both as a host state ‘obligation’ and as an investor ‘obligation’. Provisions on the non-relaxation of health, safety, environmental, and labour standards are an archetypal example of the former class of ‘obligations’, while the incorporation of CSR requirements imposed on investors of the latter. The ‘declaratory’ right to regulate with its restrictive language, signalled by the ‘otherwise consistent with’ proviso, is a particular form of positive language that may be interpreted as circumscribing state freedom of action in that it clearly stipulates that such action must be consistent with the treaty. In this sense, this kind of clause strikes a dissonant note within the framework of intensified concern about reserving host state policy space. More significantly, positive language in the preamble comes close in its effect to a genuine right to regulate. This is remarkable, given that the de iure distinction between general occurrences of positive language and positive language in the preamble is not significant: according to Article 31(1)-(2) VCLT, both need to be taken into account as part of the treaty context, the preamble also as embodying the treaty’s object and purpose. However, tribunals often do not engage in a rigorous application of the interpretative rules of the VCLT619, with the result that the preamble is more often weighed in interpretation. Seen from this angle, positive language in the preamble is de facto qualitatively different from positive language in other treaty provisions.

617 Markert, L. (2011), op cit, p. 160. 618 See also Markert, L. (2011), op cit, p. 160. 619 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 316, 337-338.

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A. General observations The present chapter delves into exceptions couched in conventional – investment treaty – law, the most direct and perspicuous manifestation of the right to regulate. Exceptions, sometimes termed non-precluded measures (NPMs) clauses620, have existed since the first BIT between Germany and Pakistan621 and have consistently appeared in investment treaties ever since622. With the new abundance of regulatory concerns in IIAs623 and the concomitant phraseological and typological variety, exceptions are also starting to figure more prominently in investment disputes624 and in legal scholarship625. De lege lata, or de lege ferenda, manifold approaches are available for the insertion of an express right to regulate in IIAs. Some methods are more popular and some less so, but most of them present both advantages and disadvantages. A widespread approach consists in introducing exceptions to substantive provisions in the respective standards of treatment. Another method is to embody a right to regulate in a specific clause clustering the complete set, or a subset, of that treaty’s exceptions. Clauses such as those discussed here usually find their place in the body of the treaty, in a protocol

620 The popularity of the term ‘non-precluded measures’ appears to be owed to William Burke-White and Andreas von Staden, see Burke-White, W. W. and Staden, A. von (2008), op cit. See also Article X US-Egypt BIT (1986). 621 See Chapter III, The right to regulate in context (Introduction). 622 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 312-313, 318 et seq. 623 For example, Markert, L. (2011), op cit., p. 170; Titi, C. (2013a), op cit., p. 843 et seq. 624 Such as the Argentinean disputes based on the US-Argentina BIT, e.g. CMS Award, op cit., CMS Annulment, op cit., LG&E Decision on Liability, op cit., Continental Casualty Award, op cit. 625 See for example Burke-White, W. W. and Staden, A. von (2008), op cit., Markert, L. (2011), op cit., Newcombe, A. and Paradell, L. (2009), op cit., p. 481 et seq., Newcombe, A. (2011), op cit..

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(this is the norm with older German BITs626) and, sometimes, in the case of comprehensive trade and economic partnership agreements, in a distinct exceptions’ chapter applicable to the entire agreement627. But whether deployed within the provision enunciating the standard of treatment, or in a separate article or chapter, these exceptions target specific standards. Consequently, they are similar in their legal effects and are examined as one group. Another approach consists in inserting exceptions clauses which, rather than referencing specific standards, apply to the entire treaty. These provisions, described in one case as provisions ‘of comprehensive scope’ 628, are typically formulated to the effect that ‘nothing in the Agreement’ shall be construed to prevent the parties from adopting the measures specified therein. These clauses, often termed ‘general exceptions’, come for the most part under two rubrics: clauses modelled after the ‘General Exceptions’ of Article XX GATT with their operation subject to a chapeau629, and clauses modelled after the ‘Security Exceptions’ of Article XXI GATT. This chapter is divided in two thematic units. The first one canvasses exceptions embedding a right to regulate in the respective standards of treatment, or with reference to specific standards, and the second concentrates on the right to regulate as a general regulatory clause applicable to the entire treaty, with a particular focus on general exceptions clauses modelled after Article XX GATT.

626 E.g. see Protocols to the BITs between Germany and Algeria (1996), Antigua and Barbuda (1998), Benin (1978), Bolivia (1987), Botswana (2000), Burkina Faso (1996), Cambodia (1999), Haiti (1973), Kenya (1996), Lesotho (1982), Mali (1977), Papua New Guinea (1980), Philippines (1997), Qatar (1996), Saudi Arabia (1996), Germany-Sri Lanka (2000), Venezuela (1996), Zimbabwe BIT (1995). Contrast with the newer BITs that include exceptions in the body of the treaty, e.g. Germany-Egypt BIT (2005), Germany-Ethiopia BIT (2004), Germany-Guinea BIT (2006), Germany-Oman BIT (2007), Germany-Pakistan BIT (2009), GermanyThailand BIT (2002). See also Germany’s Model BIT (2009). Cf. Burke-White, W. W. and Staden, A. von (2008), op cit., p. 326. 627 E.g. see Article 2104 (Balance of Payments) NAFTA Chapter Twenty-One: Exceptions and Article 2203 (Balance of Payments) of Chapter Twenty-Two: Exceptions in Canada-Colombia FTA (2008). 628 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 331. 629 See below, General exceptions clauses modelled after Article XX GATT.

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B. The right to regulate in the respective standards of treatment 1. General remarks In the European treaty model, the most widespread method of inserting an express right to regulate to date has been to anchor exceptions affecting the individual standards of treatment630 – especially the contingent standards631 – by drafting an additional paragraph in the respective treaty articles632 or by clustering all standard-specific exceptions under a separate provision633. In both cases, the exceptions are applicable only to the identified standards and do not bear upon other treaty protections634. Another consideration would be to draft an exception clause addressing specific standards by providing guidance on or examples of the types of regulatory interests covered. This approach, also possible for general regulatory clauses635, would have

630 E.g. see generally exceptions in Dutch Model BIT (2004), French Model BIT (2006), German Model BIT (2009), and compare these generally with the US Model BIT (2012) and especially with Article 18 of Canada’s Model BIT (2012). But, see e.g. exceptions to capital transfers in North American IIAs, see Article 7 US Model BIT and Article 11 Canadian Model BIT. – Examples of these exceptions will be given in the following sections of this Chapter. 631 See note 630. On the distinction between contingent or relative and non-contingent or absolute standards, see e.g. UNCTAD (2010c), op cit., p. 23-24, UNCTAD (1999a), Fair and Equitable Treatment. UNCTAD/ITE/IIT/11 (Vol. III), UNCTAD IIA Series, NY & Geneva: UN, p. 15-16, Newcombe, A. and Paradell, L. (2009), op cit., p.148-149 and 233 et seq.; McLachlan, C., Shore, L. and Weiniger, M. (2007), op cit., paras 1.25 et seq. 632 For example, Article 3(3) Dutch Model BIT (2004), Article 5 French Model BIT, Article 3(2)-(5) German Model BIT (2009). 633 This is the case of UK and to some extent Finnish BITs. See for instance Article 7 UK Model BIT (2008) and respective Article 7 of the BITs between the UK and Armenia (1993), Bangladesh (1980), Belarus (1994), Cameroon (1982), Ethiopia BIT (2009), Honduras (1993) and Article 6 UK-Ghana BIT (1989); Article 4 Finnish Model BIT, Article 4 of the BITs between Finland and Albania (1997), Belarus, Guatemala, Mexico (1999), Nigeria and Peru. Some of these provisions are seemingly fashioned as a general rather than standard-specific clause, but their phrasing leaves little doubt that they target specifically the contingent standards. See also Article IV(2) UK-Colombia BIT. – Contrast Article 14 (General exceptions) Finnish Model BIT, applicable to the entire treaty, subject to the exceptions of its third paragraph. 634 See Markert, L. (2011), op cit., p. 160-161. But cf. below, The right to regulate and provisions on compensation for losses. 635 See below, The right to regulate as a general regulatory clause.

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the advantage of disassociating the exception from a limited ex ante-identified number of policy goals or areas, thus taking into account the evolving nature of investment law636 and obviating the need for the list to be allinclusive. The sections that follow peruse the right to regulate with reference to specific standards of treatment, considering seriatim exceptions to the contingent standards, the fair and equitable treatment, the minimum standard of treatment and full protection and security, free transfers of capital, performance requirements and clauses on compensation for losses. 2. The right to regulate and the contingent standards of treatment: mostfavoured-nation treatment and national treatment Vectors for investment liberalisation, particularly when their scope reaches into the pre-establishment stage637, the most-favoured-nation treatment and national treatment (‘non-discrimination standards’638) – comprise some of the most frequently-encountered exceptions pertaining to specific treaty protections639. The exploration begins with some general reflections and continues with a query into exceptions for regional economic integration organisations (REIOs) and some quaint exceptions. Subsequently, it dwells upon the interface between the MFN treatment and dispute settlement provisions and concludes with the ‘in like circumstances’ formula. Derogations from the non-discrimination standards are also often permitted through ex-

636 See generally Alvarez, J. E. and Sauvant, K. P. eds (2011), op cit. 637 UNCTAD (2007b), op cit., p. 22, UNCTAD (2010c), op cit., p. 2, 29-30, 42; OECD (2004b), Most-Favoured-Nation Treatment in International Investment Law. Working Papers on International Investment, No 2004/2, Paris: OECD, p. 2. 638 The phrase ‘non-discrimination standards’ is used here to refer to the MFN and NT, and it does not refer to non-discrimination as a component of the FET, in which case it is an absolute standard. Cf. UNCTAD (2010c), op cit., p. 23. 639 See also UNCTAD (2010c), op cit., p. 20 and Newcombe, A. and Paradell, L. (2009), op cit., p. 189, 231.

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ceptions for public security640, public order641, public health642 and morality643; these are not examined separately. Other exceptions for essential security interests and tax matters affecting the contingent standards are surveyed in a dedicated chapter later in the book644. i. General observations The contingent standards are closely allied between them645. Whereas national treatment violations typically have their basis on domestic measures that disfavour a foreign compared to a national investor646 and most-favoured-nation treatment cases on third-country IIAs that accord preferential treatment to other foreign investors647, the contingency in both entails a necessary comparison between the investor claiming breach of the treaty and another investor, alleged beneficiary of more favourable treatment648. In view of this essential nexus between the two standards, they are considered jointly. The paragraphs that follow offer an overview of exceptions in respect of the contingent standards, using as springboard for the discussion a distinction between European and North American IIA practice.

640 E.g. Article 3(2) German Model BIT (2009), Article 5(4) Spain-Nigeria BIT, Article 4(4) Spain-Guatemala BIT. For further examples, see Chapter V, Essential security interests. 641 E.g. Article 3(2) German Model BIT (2009), Article 3(3) BLEU-Morocco BIT, Article 5(4) Spain-Nigeria BIT, Article 4(4) Spain-Guatemala BIT, explanatory notes to Articles [3] and [4] Norwegian Draft Model BIT. For further examples, see Chapter V, Public order (ordre public). 642 E.g. Point 3. Ad article 3 Protocol to the Germany-Mexico BIT, Article 3(2) 2009 Germany-Pakistan BIT, Article 5(4) Spain-Nigeria BIT, Article 4(4) Spain-Guatemala BIT. 643 E.g. Point 3. Ad article 3 Protocol to the Germany-Mexico BIT, Article 3(2) 2009 Germany-Pakistan BIT. 644 Chapter IX. 645 For a comparison see Newcombe, A. and Paradell, L. (2009), op cit., p. 224-225. 646 Newcombe, A. and Paradell, L. (2009), op cit., p. 224-225. 647 Newcombe, A. and Paradell, L. (2009), op cit., p. 225. 648 UNCTAD (2010c), op cit., 23 et seq.; Newcombe, A. and Paradell, L. (2009), op cit., p. 159 et seq. and 225 et seq. See also below, The right to regulate and the ‘in like circumstances’ formula.

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European BITs regularly cluster the most-favoured-nation and national treatment standards within the same provision649, often expressly guaranteeing whichever of the two treatments is more favourable to the investor650. As a result, pertinent exceptions in European treaties generally apply to both standards; this is, for example, the case of the German Model BIT (2009), which incorporates an explicit right to regulate within its national and most-favoured-nation treatment provision, while simultaneously providing carve-outs for pockets of public policy. After proclaiming that each contracting party shall subject investors of the other contracting party and their investments to ‘treatment no less favourable than that which it accords to investments of its own investors or to investments of investors of any third State’651, Article 3 of that model treaty provides: ‘(2) […] Measures that have to be taken for reasons of public security and order shall not be deemed treatment less favourable within the meaning of this Article. (3) The treatment granted under this Article shall not relate to privileges which either Contracting State accords to investors of third States on account of its membership of, or association with, a customs or economic union, a common market or a free trade area. (4) The treatment granted under this Article shall not relate to advantages which either Contracting State accords to investors of third States by virtue of an agreement for the avoidance of double taxation in the field of taxes on income and assets or other agreements regarding matters of taxation. (5) This Article shall not oblige a Contracting State to extend to investors resident in the territory of the other Contracting State tax privileges, tax exemptions and tax reductions which according to its tax laws are granted only to investors resident in its territory. […]’

In contrast with European treaty practice, new generation North American treaties tend to include their guarantee of national and most-favoured-nation

649 E.g. aforecited Article 3 German Model BIT (2009), Article 5 French Model BIT (2006), Article 3 Finnish Model BIT (2002), Article 3(2) Dutch Model BIT, Article 3 UK Model BIT. 650 E.g. Article 3(2) Dutch Model BIT, Article 5 French Model BIT, respective Article 3(2) of BITs between the Netherlands and Bangladesh, Bolivia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, South Africa, Mexico, Peru, Poland, Romania, Slovenia, Sri Lanka, Argentina, Jordan and Bulgaria, Article 3(3) Netherlands-China BIT, Article 4(3) France-Kenya BIT. 651 Article 3(1) and (2) German Model BIT (2009).

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treatment in two separate articles652 and, as a rule, when including exceptions to these standards, they do not embody these within the respective articles653. Some treaties contain MFN-specific exceptions, such as for public procurement and subsidies654. A conceptually distinct class of exceptions is found in these, the North American, treaties that as a rule cover the preestablishment phase655: the latter include country-specific exceptions in the form of negative or positive lists656. Negative lists refer to enumeration of given sectors or activities to which the national and most-favoured-nation treatment do not apply, while the use of positive lists entails applicability of the protection standards only in respect of the specific sectors identified in the list657. Positive and negative lists are not examined here, since they limit the scope of the treaty by carving out policy areas with reference to the investor or, in the case of positive lists, by only extending the treaty’s protections to the explicitly numbered areas. After these general remarks, the attention now turns to the REIO clause in the contingent standards.

652 E.g. see Articles 4 and 5 Canadian Model BIT (2012) and Articles 3 and 4 US Model BIT (2012), also Articles 1102 and 1103 NAFTA. But, see Article II(1) US-Argentina BIT, Article II(2)(a) US-Egypt BIT. 653 E.g. Annex 2 Canada-Kuwait BIT. Cf. US Model BIT (2012). 654 UNCTAD (2010c), op cit., p. 20-21. 655 UNCTAD (2010c), op cit., p. 42; Juillard, P. (1999), op cit., p. 54-55; Juillard, P. (2006), op cit., p. 317; Muchlinski, P. (2009a), op cit., p. 40; Joubin-Bret, A. (2008), op cit., p. 11. For example, see Articles 1102 and 1103 NAFTA, Articles 3 and 4 US Model BIT and Articles 4 and 5 Canadian Model BIT. 656 UNCTAD (2010c), op cit., p. 7, 20, 42; UNCTAD (1999b), National Treatment. UNCTAD/ITE/IIT/11 (Vol. IV), UNCTAD IIA Series, NY & Geneva: UN, p. 1, 4; Joubin-Bret, A. (2008), op cit., p. 12-13. – On the correlation between treaty exceptions in general and coverage of the pre-establishment phase, cf. UNCTAD (2007b), op cit., p. 81; UNCTAD (2009a), op cit., p. 72. 657 UNCTAD (2010c), op cit., p. 7, 42, incl. ft. 1; UNCTAD (1999b), op cit., p. 1, 4; Joubin-Bret, A. (2008), op cit., p. 13. Cf. UNCTAD (2006), op cit., p. 17 et seq.

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ii. The REIO exception in the contingent standards To the exclusion of US treaties, which generally eschew this kind of exception658, the majority of IIAs concluded by members of regional economic integration organisations incorporate a so-called REIO exception or REIO clause659. This clause provides for the non-extension of privileges obtained by virtue of the state’s participation in a REIO to investors of the other party660, and it impacts predominantly the MFN standard661. A second type of REIO clause which targets transfers of capital, often incorporating an express reference to a party’s membership of the European Union, will be examined separately662, although this exception may also affect the contingent standards663. The present section commences with some general observations on REIO clauses and their significance, having special regard to the European Union; in a second step, it highlights miscellaneous REIO exceptions to the contingent standards. REIO clauses usually reference directly free trade areas, customs unions, economic unions and similar arrangements664, without defining a REIO665, although the ECT and the Draft MAI constitute exceptions to this rule. The

658 UNCTAD (2004), The REIO Exception in MFN Treatment Clauses, Series on International Investment Policies for Development, UNCTAD/ITE/IIT/2004/7, NY & Geneva: UN, p. 44, incl. ft. 4, cf. p. 56-57, Box. 2. During the MAI negotiations, REIO clauses became one of the bones of contention between the US and the European approach. For the MAI negotiating group’s debate on REIO clauses, see OECD Multilateral Agreement on Investment (MAI): Regional Economic Integration Organisations (Note by the Chairman), DAFFE/MAI(96)12, 10 April 1996. In practice, even US treaties occasionally include REIO clauses (e.g. see Article II(9) US-Argentina BIT, Article II(9) US-Czech Republic BIT, Article II (9) US-Bulgaria BIT, Protocol to US-Egypt BIT, para. 4.). 659 UNCTAD (2004), op cit., p. 44. 660 See further UNCTAD (2004), op cit., p. 5-6. 661 E.g. see Article 3(3) Dutch Model BIT (‘nationals of any third State’). But contrast Article 4 Dutch Model BIT, referring to ‘any special fiscal advantages’ whether vouchsafed to third or host state nationals. 662 Below, The REIO exception and capital transfers. 663 E.g. see Article 7(1)(c) UK Model BIT (2008). 664 For some examples, see Article 4(3)(a) Spain-Gabon BIT, Article 3(3) Spain-China BIT, Article 3(4)(a) South Africa-Zimbabwe BIT, Article 3(3) Netherlands-South Africa BIT, Article 3(4) Switzerland-South Africa BIT, Article 3(3)(a) GreeceSouth Africa BIT, Article 3(3) Sweden-Albania BIT, Article 3(2) Sweden-Argentina BIT, Article 3(4)(a) Austria-Mexico BIT. 665 See also UNCTAD (2004), op cit., p. 44, also p. 41.

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former describes ‘economic integration agreements’ (EIAs) as ‘substantially liberalizing, inter alia, trade and investment, by providing for the absence or elimination of substantially all discrimination between or among parties’666. A Clause for Regional Economic Integration Organisations advanced during the MAI negotiations proposed a meaningfully different667 alternative, to all appearances intended to cover EU integration668. The Draft MAI defined a REIO as an organisation of states that have committed themselves to abolishing investment barriers and in which these states have vested competence over matters within the purview of the agreement ‘including the authority to adopt legislation and to make decisions binding on them in respect of those matters’669. A REIO clause is necessary to avoid free-riding670, particularly where the REIO conduces to deep economic integration671 and given that often agreements for concessions at the regional level are reached after long deliberations, and may involve a do ut des requisite, namely reciprocity. The greater the asymmetry between the investment regime within the REIO and investment protections in relation to third parties, the more the REIO exception will appear as a desideratum672. The ‘full integration’ model of the EU offers probably the best illustration of the need for a REIO clause673. All IIAs concluded by EU Member States are expected to include a REIO exception, and indeed one of wide scope, with a view to covering all aspects of EU integration, present or future674. The issue is not inconsequential. When, in May 2004, the European Commission initiated infringement proceedings against Austria, Denmark, Finland and Sweden on grounds of potential incompatibilities with EU law of bilateral investment treaties these states had concluded with third countries prior to their accession to the Union675, it took particular exception to the

666 667 668 669 670 671 672 673 674 675

Article 25(2) ECT. UNCTAD (2004), op cit., p. 45. Ibid., p. 46. Article X(1) Draft MAI (emphasis added). UNCTAD (2004), op cit., p. 6. Ibid., p. 11, see also p. 29, 38. Ibid., p. 29. Ibid., p. 38. Ibid., p. 38. See below, The REIO exception and capital transfers.

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fact that Denmark’s then BIT with Indonesia676 lacked a REIO clause. The Commission’s reasoning in this respect is revealing: Denmark’s attention was drawn to the fact that a REIO clause would have permitted it to accord preferential treatment to its EU partners, without extension to non-EU countries, while, in its absence, the state ‘could be obliged to grant rights, which in specific sectors may be reserved to Community enterprises, to an investment from a non-EU country’677. This could result in incompatibilities with specific EU law requirements678. On that occasion, Denmark terminated its agreement with Indonesia679 and the proceedings against it were dropped680. REIO exceptions in EU Member State BITs may be narrower or wider but their wording is generally purported to cover European integration. The REIO clause of the 2009 German Model BIT provides for the host state’s membership of a free trade area, customs union, common market, or economic union681. The 2006 French Model Treaty, which generally avoids explicit exceptions, includes a very similar provision682, while the 2004

676 This was the 1968 Denmark-Indonesia BIT, signed five years before Denmark’s entry in the European Union. 677 Press Release: (EU) Free movement of capital: infringement procedures against Denmark, Austria, Finland and Sweden concerning Bilateral Investment Treaties with non-EU countries, IP/04/618, 10/05/2004, Brussels, 10 May 2004 http://europa.eu/rapid/press-release_IP-04-618_en.htm?locale=en, p. 2. 678 Press Release: (EU) Free movement of capital, op cit., p. 2. 679 Denmark has in the meantime negotiated a new agreement with Indonesia, signed on 27 January 2007, but which on 1 June 2012 had still not entered into force. See UNCTAD’s Country specific Lists of BITs at http://unctad.org/Sections/dite_pcbb/ docs/bits_denmark.pdf (most recent update at the time of writing 1 June 2013). It appears that Indonesia’s ratification of the BIT is pending. See Burgstaller, M. (2009), European Law and Investment Treaties, J Int’l Arb 26 (2), p. 197, ft 83. 680 Lavranos, N. (2010), op cit., p.11. See also Vis-Dunbar, D. (2007), European Governments defend BITs in lawsuit brought by EU Executive Branch, ITN, 16 March 2007. 681 Aforecited Article 3(3) German Model BIT, see above, General observations. 682 Article 4 specifies: ‘Ce traitement ne s’étend toutefois pas aux privilèges qu’une Partie contractante accorde aux nationaux ou sociétés d'un Etat tiers, en vertu de sa participation ou de son association à une zone de libre échange, une union douanière, un marché commun ou toute autre forme d’organisation économique régionale.’ For examples of REIO clauses in French treaties, see for instance Article 4 of the BITs between France and Algeria (1993), Armenia, Bulgaria (§ 3), Ghana

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Dutch Model BIT adds a provision for ‘interim agreements leading to’ REIOs683 and adds a composite REIO exception, affecting both the contingent standards and taxation684. The 2008 UK Model BIT refers to ‘any existing or future customs, economic or monetary union, a common market or a free trade area or similar international agreement to which either of the Contracting Parties is or may become a party’685. However, it is quite apparent that even REIO clauses that do not expressly provide for future agreements or REIOs would cover these arrangements686, given the usual absence of temporal indicators to confine the relevant provisions to already existing membership of REIOs. Occasionally, REIOs may provide for a gradual extension of the national or most-favoured-nation treatment to investors of non-parties. The Framework Agreement on the ASEAN Investment Area (AIA) foresees such an extension of national treatment to all investors as well as investment liberalisation for all investors by 2020687. It has been observed that members of such REIOs might consider reflecting this extension of privileges to investors outside the REIO by drafting the REIO exception as a sunset clause that would become obsolete after the lapse of a given amount of time688. In conclusion, the various linguistic nuances between REIO exceptions should not divert from the fact that they are all purported to function as a

683 684 685

686 687 688

(§ 2) [1999 BIT, which however has not entered into force], Guatemala (§ 3), Guinea (2007), Haiti, Israel, Jamaica (§ 4.2), Kazakhstan, Kenya (§ 4), Pakistan, South Africa, United Arab Emirates and Article 5 of the BITs between France and Bangladesh and France and Jordan. Article 3(3) Dutch Model BIT. Article 4 Dutch Model BIT. Emphasis added. For very similar provisions in UK treaties, see for instance respective Articles 7 of the BITs between, on the one hand, the UK and, on the other hand, Argentina, Antigua and Barbuda, Belarus, Bosnia and Herzegovina, Burundi, Côte d'Ivoire, Ethiopia, Guyana, Haiti, Hong Kong, Paraguay, Saint Lucia, South Africa, Tonga and Turkmenistan; respective Articles 3(3) of the BITs between the UK and Chile, Jordan, Lebanon, Oman, Panama, Romania and Yemen; Article 3(4) UK-China BIT, Article 4(3) UK-India BIT, Article IV(3) UK-Philippines BIT, Article IV(2) UK-Colombia BIT, Article 4(1) UK-Bulgaria BIT (1995) and Article 5 UK-Mexico BIT (2006). For further examples of similar clauses, see Article 3(3) Sweden-South Africa BIT, Article 3(3)(a) Netherlands-Czech Republic BIT, Article 4(3)(a) Spain-Guatemala BIT, Article 4(a) Finnish Model BIT. Cf. Article 88(3) Japan-Switzerland EPA. UNCTAD (2004), op cit., p. 32. Article 4(b), (c) ASEAN AIA. UNCTAD (2004), op cit., p. 37-38.

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belts-and-braces mechanism that safeguards liberalisation and integration within a REIO from being compromised by unintentionally extending its privileges to outsiders, thus also encouraging free-riding. Given the proliferation of REIOs, these exceptions are likely to remain popular. iii. Idiosyncratic exceptions to the non-discrimination standards The plethora of concluded IIAs results in a sundry list of exceptions that sometimes acquire particular relevance in the framework of their negotiation by responding to topical sensitivities or concerns. While developed countries tend to negotiate a relatively predictable run-of-the-mill set of exceptions to the non-discrimination standards and quainter exceptions are more likely present in BITs concluded by or between emerging economies, several are not free of idiosyncrasies. The paragraphs that follow will review some infrequently-encountered exceptions, first, in BITs concluded by the emerging world and, secondly, in those concluded by developed economies. The 1995 BIT between Swaziland and the UK contains an exception to national treatment for ownership of land689. The 2007 BIT between Kenya and France, as well as the 1994 BIT between Tanzania and the UK, provide for ‘temporary special incentives’ accorded to domestic investors in order to stimulate the creation of local industries or to promote small and mediumsized enterprises, provided that investment activities of investors of the other contracting party are not substantially affected690. The 2009 China-Peru FTA integrates an exception for ‘socially or economically disadvantaged minorities and ethnic groups’691 and another exception to the MFN treatment regarding cultural industries ‘related to the production of books, magazines, periodical publications, or printed or electronic newspapers and music scores’692. Further exceptions, encountered in Chinese BITs, are those concerning the ‘sound development’ of the national economy693. South African BITs contain exceptions to the compulsory extension of special advantages conferred on development finance institutions with foreign participation to

689 690 691 692 693

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Article 3(3) UK-Swaziland BIT (1995). Article 3(3) UK-Tanzania BIT (1994), Article 4(5) France-Kenya BIT (2007). Articles 129(3) and 131(3)(a) China-Peru FTA. Article 131(3)(b) China-Peru FTA. Protocol, para. 2, China-Korea BIT (1992); Protocol to the Japan-China BIT (1988), para. 3.

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development finance institutions or investors of the other contracting party694. Yet another concern that figures as an exception in this context is one around the promotion of equality and the protection of persons disadvantaged by discrimination, an issue rendered notorious by the Piero Foresti case695. Although the claims in that case primarily concerned other protections, exceptions to the non-discrimination standards in some South African BITs seek to redress this particular issue. One such treaty, the 2009 South Africa-Zimbabwe BIT, contains an express provision for the non-obligation to extend to investors of the other party favourable treatment stemming from domestic laws or regulations ‘the purpose of which is to promote the achievement of equality’ or ‘to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination’696. But emerging economies do not have a monopoly over atypical or idiosyncratic exceptions. The 2007 France-China BIT embeds an exception for cultural and linguistic diversity within the non-discrimination standards697. A recurrent exception in French treaties, this is often to be found as a freestanding exception of general application covering the entire treaty, even if its particular significance relates to the contingent standards698. Finland’s Model BIT drafts an exception to the non-discrimination standards to allow the non-extension of preferential treatment offered by any existing or future multilateral agreement pertaining wholly or mainly to investment699. Another unusual clause is that of Article 3(3) Sweden-Russia BIT which provides for limited exceptions to the NT standard, specifying that ‘[a]ny new exception will not apply to investments made […] before the entry into

694 Article 4 France-South Africa BIT, respective Article 3(4) Greece-South Africa BIT and Netherlands-South Africa BIT and respective Article 3(5) Sweden-South Africa BIT, Switzerland-South Africa BIT and South Africa-Zimbabwe BIT. 695 Op cit. 696 Article 3(4)(c) South Africa-Zimbabwe BIT (2009). See further Article 3(4)(c) South Africa-Mauritius BIT (1998), Article 3(3)(c) Czech Republic-South Africa BIT (1998); also Ad Article IV South Africa-Chile BIT (1998). – It is of interest to note that Article 24(2)(iii) ECT contains a general exception for a related issue, namely for measures ‘designed to benefit Investors who are aboriginal people or socially or economically disadvantaged individuals or groups or their Investments’ subject to certain conditions enounced therein. 697 Article 4 France-China BIT (2007). 698 On this exception, see below, Cultural diversity. 699 Article 4(c) Finnish Model BIT. See also Article 4(c) of the BITs between Finland and Belarus, Guatemala, Mexico and Nigeria.

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force of such an exception, except when the exception is necessitated for the purpose of the maintenance of defence, national security and public order, protection of the environment, morality and public health’700. More than the regulatory interests it wishes to protect, what is remarkable about this provision is its formulation regarding ‘any new’ exceptions. The above are merely a sample of some rarely-encountered exceptions to the MFN and NT standards. To the possible exclusion of cultural diversity – probably because exceptions for cultural diversity are in fact not so few and far between –701 these clauses appear sporadically in treaties and will maybe never set a trend. iv. Non-extension of the MFN treatment to ISDS With the caveat that the exclusion of MFN coverage of ISDS is in reality a (rationae materiae) constriction of the treaty’s protections rather than a genuine right to regulate, a particular mention is all the same required, since a careless drafting of this provision has far-reaching repercussions for host state policy space. The clauses canvassed here are not germane to the national treatment, since as a rule investment arbitration is made available to foreign investors only702. Kindled when the Maffezini Tribunal ascribed a broad meaning to the MFN treatment so as to permit it to encompass investor-state dispute settlement clauses703, the doctrinal debate around the applicability of the mostfavoured-nation treatment to a treaty’s arbitration clause has been reignited by recent tribunals that continue to sow uncertainty over the issue and post-

700 701 702 703

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Article 3(3) Sweden-Russia BIT. See Chapter IX, Cultural diversity. E.g. see generally Schreuer, C. (2008a), op cit., on the state’s consent to arbitration. See Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction, 25 January 2000 (hereinafter Maffezini Decision on Jurisdiction), para. 64.

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pone its final resolution704. To counteract the general uncertainty, some treaties have started to provide for an unmitigated preclusion of MFN extension to ISDS. These treaties typically formulate this MFN exclusion as a clarification rather than as an exception705. For instance, Colombia’s Model BIT establishes: ‘The most favourable treatment to be granted in like circumstances referred to in this Agreement does not encompass mechanisms for the settlement of investment disputes […] which are provided for in treaties or international investment agreements.’ 706

704 For the awards, see Impregilo Award, op cit. and Brigitte Stern’s Concurring and Dissenting Opinion in Impregilo Award, ibid.; ICS Inspection and Control Services Limited (United Kingdom) v. Argentina, PCA Case No. 2010-9, Award on Jurisdiction, 10 February 2012; Hochtief AG v. Argentina, ICSID Case No. ARB/07/31, Decision on Jurisdiction, 24 October 2011 (hereinafter Hochtief Decision on Jurisdiction) and Separate and Dissenting Opinion of J. Christopher Thomas in Hochtief Decision on Jurisdiction, ibid.; Wintershall Aktiengesellschaft v. Argentina, ICSID Case No. ARB/04/14, Award, 8 December 2008; Tza Yap Shum v. Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence, 19 June 2009, paras 193 et seq.; see also Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentina, ICSID Case No. ARB/09/1, Decision on Jurisdiction, 21 December 2012, paras 137 et seq. and Kamal Hossain’s Separate Opinion. For some of the older awards, see Plama Decision on Jurisdiction, op cit.; Siemens Decision on Jurisdiction, op cit.; Gas Natural SDG, S.A. v. Argentina, ICSID Case No. ARB/03/10, Decision on Preliminary Questions on Jurisdiction, 17 June 2005; National Grid Decision on Jurisdiction, op cit. For the doctrinal debate, see McLachlan, C., Shore, L. and Weiniger, M. (2007), op cit., paras 7.162 et seq.; Ben Hamida, W. (2007), Clause de la nation le plus favorisée et mécanismes de règlement des différends : Que dit l’histoire? JDI 134 (4); Ben Hamida, W. (2008), La clause de la nation la plus favorisée : le show continue, Gazette du Palais – Cahiers de l’arbitrage 128 (4); Schreuer, C. (2008a), op cit., p. 851-855; Markert, L. (2010), Streitschlichtungsklauseln in Investitionsschutzabkommen, Baden Baden: Nomos, p. 278 et seq.; Douglas, Z. (2011), The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails, JIDS 2(1); Schill, S. W. (2011), Allocating Adjudicatory Authority: Most-Favoured-Nation Clauses as a Basis of Jurisdiction – A Reply to Zachary Douglas, JIDS 2 (2); Paparinskis, M. (2011), MFN Clauses and International Dispute Settlement: Moving Beyond Maffezini and Plama? ICSID Rev 26; Vicuña, F. O. (2012), ‘Reports of [Maffezini’s] demise have been greatly exaggerated’, JIDS 3 (2). See also Titi, C. (2013a), op cit., p. 846-847; Bungenberg, M. and Titi, C. (2013a), op cit., p. 458-460; UNCTAD (2010c), op cit., p. 66-84. 705 See examples below. – On clarifications, see Chapter II, Clarifications and interpretative statements. 706 Article IV(2) Colombian Model BIT (2007).

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Analogous provisions exist in a considerable number of newer agreements, including at least six recent comprehensive investment treaties, the Draft CETA Investment Text, as well as the 2010 BIT between the United Kingdom and Colombia707. The latter marks a departure from standard UK treaty practice708 inasmuch as it disallows extension of the most-favourable treatment to ISDS. In a different formulation, the final draft text of the US-Dominican Republic-Central America Free Trade Agreement (US-DR-CAFTA) included an interpretative footnote to the effect that the parties, cognizant of the Maffezini Tribunal’s finding of ‘an unusually broad most-favoured-nation clause […] to encompass international dispute resolution procedures’, formulated an article ‘expressly limited in scope to matters “with respect to the establishment, acquisition, management, conduct, and sale or other disposition of investments”’709. According to the same interpretative statement, the parties’ understanding and intention was that this clause does not apply to ISDS and that it ‘therefore could not reasonably lead to a conclusion similar to that of the Maffezini case’710. This footnote was suppressed in the final text, but the parties have agreed that it makes part of the agreement’s negotiating history as an expression of their understanding of the scope of that provision711.

707 E.g. Article V(3) BLEU-Colombia BIT (2009), Article 3(1) (‘Note’) ColombiaJapan BIT (2011), Annex 804.1 Canada-Peru FTA (2008), Article 88(2) JapanSwitzerland EPA, Article 5(4) ASEAN-China Investment Agreement (2009), Article 6 ASEAN CIA, ft. 4, Article 131 China-Peru FTA, ft. 13, Article 4.1 EFTAHong Kong FTA (2011), ft. 16, Article III(2) UK-Colombia BIT (2010); Article X. 8(4) Draft CETA Investment Text of 31 May 2013. This document has been leaked at http://www.tradejustice.ca/about-ceta/sample-page/. 708 E.g. Article 3(3) UK Model BIT, further reinforced by Article 11. See also, for instance, respective Articles 3(3) and 11 of the BITs between the UK and Azerbaijan, Barbados, Belarus, Bosnia and Herzegovina, Burundi, Côte d'Ivoire, Cuba, Ethiopia, Georgia, Honduras, Kazakhstan, Laos, Pakistan, Slovenia, South Africa, Tonga, Turkmenistan and Uganda, and respective Articles 3(4) and 10 UK-Chile BIT and UK-Lebanon BIT; see also Articles 3(3) and 10A UK-Paraguay BIT (1981) as amended by the Exchange of Notes upon a proposal by Paraguay. 709 This is now Article 10.4 of Chapter 10 (Investment) of the final text. The same provision is found with respect to the NT provisions of the US-DR-CAFTA (2004). 710 OECD (2004b), op cit., p. 18-19, ft. 8. 711 OECD (2004b), op cit., p. 19, ft. 8.

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v. The right to regulate and the ‘in like circumstances’ formula Inherent in the notion of the contingent standards of treatment is a comparative test between two investments or two investors in order to establish whether one benefits from more favourable treatment than the other712. Although this comparative test is not tantamount to offering states a right to regulate, it has an indirect import for policy space, since, as will be shown in the discussion that follows, it has repeatedly been construed to invite a balancing of the investor’s interests with legitimate policy concerns of the host state. In some quarters even, it is considered as vouchsafing greater regulatory flexibility than general exceptions clauses713. Accordingly, the requirement for comparison is examined in the present section, first in the presence of an express stipulation to that effect and then in its absence. Before a violation of the contingent standards is made out, a tribunal needs to determine that there has been differential treatment by proceeding to a comparative examination714. In treaty practice, this comparison is sometimes made explicit by means of the ‘in similar’ or ‘in like circumstances’ formula. North American treaties, in particular, consistently incorporate such formulations715, inherited from early US FCN treaties716. Article 1103(1) NAFTA on the most-favoured-nation treatment states: ‘Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.’717

712 UNCTAD (2010c), op cit., 23 et seq.; Newcombe, A. and Paradell, L. (2009), op cit., p. 159 et seq. and 225 et seq. 713 Newcombe, A. and Paradell, L. (2009), op cit., p. 503, 505. Cf. Weiler, T. (2004), Prohibitions against Discrimination in NAFTA Chapter 11, in Weiler, T. (ed.), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects, NY: Transnational, p. 37-38, where the author talks of the ‘like circumstances exception’ (emphasis added). On general exceptions clauses, see below, The right to regulate as a general regulatory clause. 714 UNCTAD (2010c), op cit.; Newcombe, A. and Paradell, L. (2009), op cit. 715 E.g. see Articles 3 and 4 US Model BIT, Articles 4 and 5 Canadian Model BIT and Articles 1102-1103 NAFTA (Article 1103(1) is reproduced in the text). Cf. Article 4 Dutch Model BIT. 716 Article 15 Jay Treaty, op cit.; Articles V and XI Austria-Hungary FCN, op cit.; Article XIII Belgium-US FCN, op cit. 717 Emphasis added. See also the very similar Article 1103(2) NAFTA.

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Tribunals have sometimes interpreted this ‘in like circumstances’ or equivalent phrasing as offering states regulatory freedom by applying the comparative test as a balancing device to allow for legitimate state concerns to be taken into account718. So, the Feldman Tribunal found that ‘discrimination has been defined to imply unreasonable distinctions between foreign and domestic investors in like circumstances’719. Or, in the words of the S.D. Myers Tribunal, ‘[a] finding of “likeness” […] may set the stage for an inquiry into whether the different treatment of situations found to be “like” is justified by legitimate public policy measures that are pursued in a reasonable manner’720 Indeed, ‘a less favourable treatment is acceptable if a State’s legitimate objective justifies such different treatment in relation to the specificity of the investment.’721 Other arbitral tribunals have made statements in a similar vein, apparently impelled to a consideration of legitimate state interests after examining the ‘in like circumstances’ proviso. The Pope & Talbot Tribunal reasoned that differences in treatment would not amount to a treaty violation if they have ‘a reasonable nexus to rational government policies’722 and the Gami Tribunal, after applying the ‘in like circumstances’ test, underpinned its finding of non-discrimination with the measure’s plausible connection ‘with a legitimate goal of policy’723. We are then here in the realm of the ‘legitimate interests’ phraseology. The next question is what happens in the absence of an explicit comparator. The obligation to grant most-favoured-nation treatment or national treatment does not decree that states should treat all investors and invest-

718 DiMascio, N. and Pauwelyn, J. (2008), op cit., p. 82-83, also passim; Newcombe, A. (2011), op cit., p. 366 et seq. 719 Feldman Award, op cit., para. 170, emphasis in original. For the use of ‘reasonable’ in international law, see Salmon, J. J. A. (1981), Le concept de raisonnable en droit international public, in Mélanges offerts à Paul Reuter – Le droit international, unité et diversité, Paris: A. Pedone and the dedicated study by Corten, O. (1997), L’utilisation du « raisonnable » par le juge international, Discours juridique, raison et contradictions, Brussels: Bruylant; see further Robert-Cuendet, S. (2010), op cit., p. 307 et seq. 720 S.D. Myers Partial Award, op cit., para. 246. 721 Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007 (hereinafter Parkerings-Compagniet Award), para. 371. 722 Pope & Talbot Inc. v. Canada, Award on the Merits of Phase 2, 10 April 2001, para. 78. 723 Gami Investments, Inc. v. Mexico, UNCITRAL, Final Award, 15 November 2004, para. 114.

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ments in the same way, no matter which business sector they operate in or regardless of their respective circumstances724. The most-favoured-nation treatment, in particular, is governed by the eiusdem generis principle, under which the only rights that may be claimed are those falling within the confines of the clause’s subject-matter725 or, in other words, ‘the most-favourednation clause can only attract matters belonging to the same category of subject as that to which the clause itself relates’726. Although the eiusdem generis principle has been employed to describe the MFN treatment, there is no reason why it should not be equally transposable to the national treatment727. The contingent nature of the non-discrimination standards entails therefore a reading of the comparative context implicit in their definition728. In the words of the Total Tribunal, ‘[i]n order to determine whether treatment is discriminatory, it is necessary to compare the treatment challenged with the treatment of persons or things in a comparable situation. In economic matters the criterion of “like situation” or “similarly-situated” is widely followed because it requires the existence of some competitive relation between those situations compared that should not be distorted by the State’s intervention against the protected foreigner. This is inherent in the very definition of the term “discrimination” under general international law that: “Mere

724 UNCTAD (2010c), op cit., p. 26. See also See further Newcombe, A. and Paradell, L. (2009), op cit., p. 161. 725 Articles 9 and 10 ILC Draft Articles on Most-Favoured-Nation Clauses; International Law Commission (1978). Draft Articles on Most-Favoured-Nation Clauses with Commentaries. Report adopted at the ILC’s thirtieth session. Yearbook of the International Law Commission II, Part Two. untreaty.un.org/ilc/texts/instruments/ english/commentaries/1_3_1978.pdf, Commentary to Article 4, p. 21, para. 17; OECD (2004b), op cit., p. 9 et seq.; UNCTAD (2010c), op cit., p. 24-26; Cole, T. (2012), The Boundaries of Most Favored Nation Treatment in International Investment Law, MJIL 33, p. 564 et seq.; Maffezini Decision on Jurisdiction, op cit., paras 46 et seq.; Total Decision on liability, op cit., para. 210, ft. 258. Cf. McNair, A. (1998), The Law of Treaties, NY: Clarendon Press/OUP, p. 287-291 and on the eiusdem generis principle p. 393 et seq. – The eiusdem generis principle is in fact an interpretative principle according to which specific words determine the meaning of general words which may not stretch beyond the subject-matter of the specific words. 726 Ambatielos Claim, Greece v. United Kingdom, Award, 6 March 1956, UNRIAA, Vol. XII, p. 107, see also p. 106. 727 See for example Total Decision on Liability, op cit., para. 210, ft. 258, also paras 211 et seq. 728 UNCTAD (2010c), op cit., p. 54.

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differences of treatment do not necessarily constitute discrimination…discrimination may in general be said to arise where those who are in all material respects the same are treated differently, or where those who are in material respects different are treated in the same way.” ’729 The Total Tribunal, adjudicating a dispute in the absence of a comparator such as ‘in like circumstances’ in the France-Argentina BIT730, held that ‘the absence of the term “like” […] is not decisive since this element is inherent in an evaluation of discrimination.’ The tribunal could not accept that ‘measures of general application that have practically resulted in different treatment being accorded to investors in different sectors and irrespective of their different nationality can be considered per se discriminatory without any “in like circumstances” analysis.’731 To bolster its argument, it cited the antecedent ParkeringsCompaniet Tribunal732 which, engaged in the interpretation of a most-favoured-nation provision without the ‘in like circumstances’ formula, concluded that ‘[t]he essential condition of the violation of a MFN clause is the existence of a different treatment accorded to another foreign investor in a similar situation. Accordingly, a comparison is necessary with an investor in like circumstances.’733 It is then quite apparent that, even in the absence of the ‘in like circumstances’ proviso, the requirement to compare does not disappear and it can be reasonably expected that arbitral tribunals will still apply some comparative test734. The issue has, of course, not wholly eluded controversy. During the MAI negotiations, some delegations considered that the comparative context was implicit in the contingent standards, while others called for the incorporation of ‘in like circumstances’735. The same issue may have emerged during the painstaking efforts to reach a common Member State position in the deliberations that culminated in the EU negotiating directives of September 2011

729 Total Decision on Liability, op cit., para. 210, including Jennings, R. and Watts, A. citation. 730 See Article 4 France-Argentina BIT. 731 Total Decision on Liability, op cit., para. 213. 732 Total Decision on Liability, op cit., para. 213, ft. 260. 733 Parkerings-Compagniet Award, op cit., para. 369, emphasis in original. 734 UNCTAD (2010c), op cit., p. 26, 54; European Commission (2012), op cit., section 7 para. 8; Newcombe, A. and Paradell, L. (2009), op cit., p. 160-161, see further p. 224; See also Goetz and others v. Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999 (hereinafter Goetz Award), para. 121. But cf. Lévesque, C. (2013), op cit., p. 141-142. 735 MAI Commentary, op cit., p. 11, 28.

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and its provision for ‘unqualified’ national and most-favoured-nation treatment, unaccompanied by the ‘in like circumstances’ formula736. In the more recent EU-Canada negotiations on the CETA, the EU appeared somewhat reluctant to endorse the ‘in like circumstances’ formula proposed by Canada, noting that the interpretation given to the non-contingent standards in the presence or in the absence of the term is essentially the same737. However, the Draft CETA Investment Text of 31 May 2013 contains an apparently agreed-upon ‘in like situations’ comparator738. In conclusion, the finding of a breach of the contingent standards requires a comparison with similar situations, and eliding the ‘in like circumstances’ phrasing does not imply that the comparative test is relinquished by the parties. In the presence or absence of the ‘in like circumstances’ formula, this test acts as a protective valve that allows legitimate host state interests to be taken into account. 3. The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security The most important standard in investment arbitration739, the guarantee of fair and equitable treatment is a fluid and imprecise concept740, which requires a measure of equity of host state conduct vis-à-vis the investor. The fair and equitable treatment is often discussed in terms of its relationship to the minimum international standard, which governs the treatment of aliens under customary international law741 and comprehends concepts such as

736 Council (EU) negotiating directives of September 2011, op cit., under the heading Standards of treatment. 737 European Commission (2012), op cit., section 7 para. 8. 738 Articles X.7 and X.8 Draft CETA Investment Text of 31 May 2013, op cit. 739 Dolzer, R. and Schreuer, C. (2008), op cit., p. 119; Schreuer, C. (2005), Fair and Equitable Treatment in Arbitral Practice, JWI&T 6 (3), p. 357. 740 Schreuer, C. (2005), op cit., p. 364-365; Yannaca-Small, K. (2008b), Fair and Equitable Treatment Standard: Recent Developments, in Reinisch, A. (ed.), Standards of Investment Protection, NY: OUP, p. 111, 118. 741 Dolzer, R. and Schreuer, C. (2008), op cit., p. 124-128; Schreuer, C. (2005), op cit., p. 359-364; Yannaca-Small, K. (2008b), op cit., p. 113-118; UNCTAD (2012c), Fair and Equitable Treatment: A Sequel, UNCTAD IIA Series II, NY & Geneva: UN, p. 83-85. See also Total Decision on Liability, p. 23-29; Kläger, R. (2011), ‘Fair and Equitable Treatment’ in International Investment Law, NY: CUP, p. 48 et seq.

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protection against denial of justice742. Conceptually allied with these two standards743, full protection and security enjoins the host state to offer investments ‘reasonable protection’744. The discourse that follows explores the right to regulate with regard to the fair and equitable treatment, the minimum standard of treatment and full protection and security. Whereas exceptions to the contingent standards are amongst the mostfrequently encountered ones745, exceptions to absolute, or non-contingent, standards are scarcer. One of the principal reasons for this discrepancy is that the protections accorded by the contingent standards are solely treatybased746, while several non-contingent standards reflect ‘an important part of the minimum standard of treatment of aliens’ dictated by customary international law747. This is namely the case of the standards considered here. The fair and equitable treatment and full protection and security, a fortiori when pegged to the minimum international standard748, may constitute an irreducible minimum from which no derogations are permitted. It is no wonder then that these standards, and, especially, the fair and equitable treatment and the minimum standard of treatment, are generally not subject to exceptions749.

742 UNCTAD (2012c), op cit., p. 44. 743 Kläger, R. (2011), op cit., p. 291-295; Cordero Moss, G. (2008), Full Protection and Security, in Reinisch, A. (ed.), Standards of Investment Protection, NY: OUP, p. 132, 136-137, 146-149. See also Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award, 14 July 2006 (hereinafter Azurix Award), paras 406-408. See generally, Schreuer, C. (2010), Full Protection and Security, JIDS 1 (2); Dolzer, R. and Schreuer, C. (2008), op cit., p. 149, 152-153. 744 Legum, B. and Petculescu, I. (2013), GATT Article XX and International Investment Law, in R. Echandi and P. Sauvé (eds), Prospects in International Investment Law and Policy: World Trade Forum, NY : CUP, p. 356. 745 E.g. Article 3 Dutch Model BIT (2004), Article 4 Finnish Model BIT, Article 5 French Model BIT (2006), Article 3 German Model BIT (2009), Article 7(1) UK Model BIT (2008), Article 3 Swedish Model BIT (2003). 746 E.g. Newcombe, A. and Paradell, L. (2009), op cit., p. 149, 290; McLachlan, C., Shore, L. and Weiniger, M. (2007), op cit., para. 7.191. 747 McLachlan, C., Shore, L. and Weiniger, M. (2007), op cit., para. 1.26, see further para. 7.191. 748 E.g. Article 1105 NAFTA, Article 5 US Model BIT (2012), Article 6 Canadian Model BIT (2012). 749 See also Article X(2) Draft CETA Investment Text of 31 May 2013, op cit., proposed by the EU, which explicitly excludes application of the draft treaty's general exceptions from these standards.

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The emergence of particular arbitral topoi in the interpretation of the fair and equitable treatment750, notably the protection of the investor’s legitimate expectations751, non-discrimination, fair procedure and proportionality, introduce the idea of a balancing test that allows the tribunal to take into account the legitimate interests of the host state752, to some extent – but to some extent only – rendering the need for an exception redundant753. As an illustration, the investor’s legitimate expectations as part of the fair and equitable treatment754 cannot exist where there is a lack of good faith, or reprehensible investor conduct755, or where the state’s legitimate interest is so overriding that the investor will not be deemed to have ‘legitimately’ held its expectations. It has been suggested, in this context, that those concerned about potential abusive investor claims of a violation of this standard, and the attendant regulatory chill, should consider ‘the balanced, proportionate positions taken by some recent tribunals’756. This topic will be revisited in some

750 The term is borrowed from Kläger, R. (2011), op cit., p. 116-119. On these arbitral topoi see also: UNCTAD (2012c), op cit., p. 61 et seq.; Dolzer, R. and Schreuer, C. (2008), op cit., p. 133-147; Schreuer, C. (2005), op cit., p. 373-385; YannacaSmall, K. (2008b), op cit., p. 118-129. See also especially Técnicas Medioambientales Tecmed S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 (hereinafter Tecmed Award), para. 154. 751 The investor’s legitimate expectations may also become relevant when determining whether there has been an indirect expropriation. E.g. see Robert-Cuendet, S. (2010), op cit., p. 166 et seq., p. 381; Dolzer, R. and Schreuer, C. (2008), op cit., p. 104-106; Dolzer, R. (2002), Indirect Expropriations: New Developments? NYU Envtl L J 11, p. 78-79; Paulsson, J. and Douglas, Z. (2004), Indirect Expropriation in Investment Treaty Arbitrations, in Horn, N. (ed.), Arbitrating Foreign Investment Disputes – Procedural and Substantive Legal Aspects, Kluwer Law International: The Hague, p. 157. 752 Newcombe, A. and Paradell, L. (2009), op cit., p. 267; UNCTAD (2012c), op cit., p. 7, 77; Alvarez, J. E. (2011a), op cit., p. 325, 383-384. See also Kläger, R. (2011), op cit., p. 122 et seq. and p. 151, ft. 617; McLachlan, C. (2008), Investment Treaties and General International Law, ICLQ 57, p. 382-383. See further Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (The fair and equitable treatment). 753 Cf. Alvarez, J. E. (2011a), op cit., p. 325. 754 E.g. Alvarez, J. E. (2011a), op cit., p. 325, ft. 624, p. 329, 384. 755 On investor conduct in the FET context, see Muchlinski, P. (2006), ‘Caveat Investor’? The Relevance of the Conduct of the Investor Under the Fair and Equitable Treatment Standard, ICLQ 55; UNCTAD (2012c), op cit., para. 124. See further Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (The fair and equitable treatment). 756 Yannaca-Small, K. (2008b), op cit., p. 126-127.

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detail when examining arbitral jurisprudence on this standard757. Seldom, quite apart from the general rule, exceptions are introduced to the FET standard, such as in the case of the Investment Agreement for the COMESA Common Investment Area (COMESA CIA), to accommodate different levels of host economy development758. The minimum standard of treatment contestably finds expression in the 1926 so-called Neer standard759, an interpretation recently espoused by the Glamis Gold Tribunal760. According to the latter, the standard is ‘just that, a minimum standard. It is meant to serve as a floor, an absolute bottom, below which conduct is not accepted by the international community’761; and, ‘an act must be sufficiently egregious and shocking—a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons—so as to fall below accepted international standards’762. In accordance with this reasoning, it is not possible to fall below this standard, and therefore no digressions

757 Chapter XI, General observations and Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (The fair and equitable treatment). 758 See Article 14(3) COMESA CIA, in conjunction with paras 1 and 2 (‘For greater certainty, Member States understand that different Member States have different forms of administrative, legislative and judicial systems and that Member States at different levels of development may not achieve the same standards at the same time. Paragraphs 1 and 2 of this Article [fair and equitable treatment equated with the minimum international standard] do not establish a single international standard in this context.’). 759 L. F. H. Neer and Pauline Neer (USA) v. Mexico, Award, 15 October 1926, Reports of International Arbitral Awards/ Recueil des sentences arbitrales, Vol. IV, p. 61-62, para. 4 (‘the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency’). 760 Glamis Gold, Ltd v. United States, UNCITRAL, Award, 8 June 2009 (hereinafter Glamis Gold), para. 616, paras 614, 616. Cf. International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award, 26 January 2006 (hereinafter Thunderbird Award), para. 194 and Merrill and Ring Forestry L. P. v. Canada, UNCITRAL (ICSID Administered), Award, 31 March 2010, paras. 196 et seq. and esp. 210. 761 Ibid., para. 615. 762 Ibid., para. 616. Cf. Thunderbird Award, op cit., para. 194.

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should be permitted. It is no surprise then that there are generally no exceptions to the minimum standard of treatment763. Lastly, the guarantee of full protection and security requires the host state to offer investments in its territory physical and legal protection764 and it has been interpreted by one tribunal to encompass ‘the state’s obligation to take reasonable steps to protect its investors (or to enable its investors to protect themselves) against harassment’ but not to impede the exercise of the host state’s right to regulate765. Exceptions to the full protection and security standard are a little less difficult to come by. Especially, treaties concluded by BLEU provide exceptions to this standard for measures taken for the maintenance of public order766. The exception is on rare occasions supplemented by an exception for national security767. In sum, the fair and equitable treatment and the minimum standard of treatment are free of exceptions introduced in their respective provisions. This is probably due to the fact that these standards are either considered as minima or are seen as already incorporating a balancing test. Exceptions to the full protection and security standard, while still rare, are sometimes encountered, notably in BLEU BITs. It is assumed that in these cases the full protection and security standard is not tied to the minimum standard under general international law.

763 Newcombe, A. and Paradell, L. (2009), op cit., p. 319. But cf. Article 14(3) COMESA CIA. 764 See generally, Schreuer, C. (2010), op cit. and Foster, G. K. (2012), Recovering “Protection and Security”: The Treaty Standard’s Obscure Origins, Forgotten Meaning, and Key Current Significance, VJTL 45. See also Dolzer, R. and Schreuer, C. (2008), op cit., p. 150-152; Cordero Moss, G. (2008), op cit., p. 131-132, 138 et seq. Cf. Article IV(1) Argentina-Chile BIT (‘plena protección y seguridad jurídica’, full protection and legal security), Article V(1) Bolivia-Peru BIT, Article 4(1) Germany-Argentina BIT. 765 AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010 (hereinafter AES Award), para. 13.3.2. 766 See respective Articles 3(2) of the BITs between BLEU and Argentina, Chile, El Salvador, Estonia, Ethiopia, Libya, Mauritius, Mexico, Peru, Philippines, Tajikistan, Tunisia, Ukraine, Uruguay and Uzbekistan, Article 3 BLEU-Kazakhstan BIT, Article 3(1) BLEU-Guatemala BIT, Article 2(4) BLEU-Czech Republic BIT, Article 3(3) BLEU-Morocco BIT. 767 See for instance Article 3(2) BLEU-Uzbekistan BIT.

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4. The right to regulate and expropriation The crucial dilemma affecting expropriation and the right to regulate has been identified as where to draw the line between, ‘on the one hand, legitimate regulatory measures imposed by governments on foreign businesses and, on the other hand, illegitimate interference with the rights and interests of foreign investors’768. The following analysis discusses the right to regulate with respect to expropriation, commencing with a general outline and exceptions to the standard in the first section. De lege ferenda, an exception modelled after the ECHR is examined in the subsequent section. The deontology of drafting exceptions to the expropriation standard is considered below in conjunction with the particular relevance of exceptions modelled after Article XX GATT to expropriation769. i. The right to regulate and expropriation in general It is a rule of customary international law that states are allowed to expropriate the assets of foreign investors without incurring international liability subject to the requirement that such expropriation is non-discriminatory, for a public purpose, in accordance with due process of law and on payment of

768 Lowe, V. (2002), Regulation or Expropriation? Current Legal Problems 55 (1), p. 447. On the same, see further Paulsson, J. and Douglas, Z. (2004), op cit., p. 145. Robert-Cuendet, S. (2010), op cit., p. 2 and passim; Kriebaum, U. (2007), op cit., p. 718, 720 et seq.; Leonhardsen, E. M. (2012), op cit., p. 120 et seq.; UNCTAD (2003a), op cit., p. 112; Lévesque, C. (2003), Les fondements de la distinction entre l’expropriation et la réglementation en droit international, RGD 33; Brownlie, I. (2008), Principles of Public International Law, 7th edn, NY: OUP, p. 532. 769 Below, Relevance of general exceptions clauses modelled after Article XX GATT (Expropriation).

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compensation770. By the same token, and while a number of treaties have expressly incorporated relevant customary international law771, exceptions targeting expropriation, in particular direct expropriation, are scarce, and lawfulness of expropriation remains largely subject to compensation772. The paragraphs that follow give a brief tour d’horizon of the expropriation standard and exceptions encountered in its respect. Expropriation provisions are different to other investment protections in that, instead of guaranteeing that the investor’s property shall not be expropriated, they decree the terms under which such expropriation shall be lawful773. At first blush then, the typical provision on expropriation affords the state regulatory freedom, since the state’s power to proceed to an expropriation is not questioned774, and provision for the public interest among these terms creates the illusion that the right to regulate is taken into account775.

770 UNCTAD (2000c), Taking of Property, UNCTAD/ITE/IIT/15, UNCTAD IIA Series, NY & Geneva: UN, p. 1, 12; UNCTAD (2003a), op cit., p. 110; Dolzer, R. and Schreuer, C. (2008), op cit., p. 91; Salacuse, J. W. (2009), op cit., p. 54 et seq., p. 320; see also Newcombe, A. and Paradell, L. (2009), op cit., p. 322-323; RobertCuendet, S. (2010), op cit., p. 15-16, 104; OECD (2004a), op cit., p. 2, ft. 1, p. 3, 22; Lévesque, C. (2003), op cit., p. 46; Nouvel, Y. (2003), L’indemnisation d’une expropriation indirecte, Int’l L FORUM D Int’l 5 (3), p. 198. Some French BITs, as well as the French Model BIT, include an additional requirement, namely that the expropriation shall not be against a specific commitment (engagement particulier). See Article 6(2) French Model BIT (2006); Article 5(2) France-Libya BIT (2004); Article 6(2) France-Djibouti BIT (2007). However, this provision is absent from the more recent France-China (2007) and France-Kenya (2007) BITs. 771 E.g. Article 6(1) US Model BIT (2012) in conjunction with Annex B, para. 1, Article 10(1) Canadian Model BIT (2012), Article 1110(1) NAFTA; also Section IV (2) (Expropriation and compensation) Draft MAI. 772 UNCTAD (2000c), op cit., p. 12-13. 773 E.g. see Article 13(1) (Expropriation) ECT. Contrast Article 7(1) and (2) BLEU Model BIT (2002) and the formulation of expropriation provisions in BITs concluded by BLEU (for examples, see paras 1 and 2 of articles cited in note 777). 774 E.g. see Robert-Cuendet, S. (2010), op cit., p. 104, 107. 775 This is particularly true in the case of a number somewhat atypically-crafted provisions in BITs concluded by BLEU, seemingly allowing for ‘derogations’ from a non-expropriation standard for ‘reasons of public purpose, security or national interest’, but which however do not dispense with the requirement for compensation. See for instance Article 4(2) BLEU-Albania BIT, Article 4(2) BLEU-Algeria BIT, Article 4(2) BLEU-Azerbaijan BIT, Article 4(2) BLEU-China BIT (2005), Article 4(2) BLEU-Estonia, Article 7(2) BLEU-Ethiopia BIT, Article 7(2) BLEULibya BIT, Article 7(2) BLEU-Madagascar BIT and Article 7(2) BLEU-Panama BIT.

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However, the presence of a public interest in the expropriatory measure does not authorise a digression from the standard, but simply allows one of the conditions for its legality to be met776. But the thrust of the dilemma of how to reconcile the interests of investors and host states consists in the legal consequences of a regulatory clause, viz. on whether there is a duty to compensate777, and, since even a lawful expropriation incurs a duty to compensate, state discretion is constrained778. An exception to the rule that a legitimate state interest does not permit derogation from the expropriation provisions is sometimes introduced with regard to indirect expropriation, in an apparent attempt to distinguish between an expropriation and a legitimate regulatory measure. New generation treaties, such as the US Model BIT, introduce a specification to the effect that: ‘Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.’779

776 Dolzer, R. and Schreuer, C. (2008), op cit., p. 91. 777 See Chapter II, The right to regulate: what’s in a name… See also Markert, L. (2011), op cit, p. 166. 778 Markert, L. (2011), op cit, p. 165; Robert-Cuendet, S. (2010), op cit., p. 23. Contra Nouvel, Y. (2002), op cit., p. 96. 779 Annex B, para. 4(b) US Model BIT (2012). See further the similar provisions of: Annex B(4)(b) US-Rwanda BIT (2008), Annex B(4)(b) US-Uruguay BIT (2005), Annex 10-D(4)(b) US-Chile FTA (2003), Annex 10-B(3)(b) US-Colombia FTA (2006), Annex 10-C(4)(b) US-DR-CAFTA (2004), Annex 10-B(4)(b) US-Panama TPA (2007), Annex 10-B(3)(b) US-Peru TPA (2006); Annex B.10(c) Canadian Model BIT (2012), Annex B.13(1)(c) Canada-Peru BIT (2006) (suspended by Canada-Peru FTA of 2008, see Article 845 ibid.), Annex B(3) Canada-Latvia BIT (2009), Annex B(c) Canada-Romania BIT, Annex 11-D(3)(b) Chile-Peru FTA (2006), Article 7(4) Austrian Model BIT (2011), Article VI(2)(c) Colombian Model BIT, Article IX(3)(c) BLEU-Colombia BIT. The Canadian and Colombian Model Treaties offer examples of the ‘rare circumstances’, namely ‘when a measure or series of measures are so severe in the light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith’ (cited here: Colombian Model BIT, see also the practically identical wording of Canada’s Model BIT). See also Annex 2 ASEAN CIA in conjunction with Article 14 ASEAN CIA and Article 20(8) COMESA CIA (2007).

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This provision, ostensibly emulating national law standards780 in response to demands on the part of the US Congress that US BITs do not offer foreign investors ampler rights than those afforded US investors781, has the appearance of an interpretive statement782. However, it is, in effect, tantamount to a genuine exception to the indirect expropriation standard783. Analogous provisions exist in other treaties that omit the ‘except in rare circumstances’ proviso784, including, markedly, the COMESA CIA which makes unequivocal reference to the right to regulate and the doctrine of state police powers785. Although, as will be examined later, in the absence of such provisions a few tribunals have still recognised the state’s legitimate right to impose general regulatory measures without incurring a duty to compensate786, explicitly incorporating these clauses in investment treaties may present advantages where, for example, environmental or health regulation such as that involved in the two Vattenfall and the two Philip Morris cases respectively787 is called into question, eventually shielding states from successful investor claims under the expropriation standard788.

780 See American Law Institute (1987), Restatement of the Law Third: Foreign Relations Law of the United States, Vol. 2, §§ 501-End, 14 May 1986, St. Paul, Minn.: American Law Institute (hereinafter Restatement of the Law Third), § 712, comment g, cited in Chapter XI, Expropriation. 781 See Alvarez, J. E. (2010a), op cit., p. 160-161, incl. ft. 38 and Robert-Cuendet, S. (2010), op cit., p. 107-108. See further Section 2102(b)(3) Trade Act of 2002, Pub. L. 107-210, HR 3009, 116 Stat. 933, 6 August 2002, 19 USC, § 3803-3805, US Trade Promotion Authority Act. 782 See Chapter II, Clarifications and interpretative statements. 783 Ibid. 784 E.g. see Annex 2 ASEAN CIA in conjunction with Article 14 ASEAN CIA and Article 20(8) COMESA Common Investment Area. 785 Article 20(8) COMESA CIA. On the state police powers doctrine, see Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation); also below, Relevance of general exceptions clauses modelled after Article XX GATT (Expropriation). 786 See Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation). 787 Vattenfall I, op cit. and Vattenfall II, op cit., Philip Morris v. Uruguay, op cit. and Philip Morris v. Australia, op cit. 788 See also Firger, D. M. and Gerrard, M. B. (2012), Harmonizing Climate Change Policy and International Investment Law, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2010-2011, NY: OUP, p. 558.

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Finally, Article 10(5) of the Canadian Model BIT incorporates a relatively rare, narrow exception to the expropriation provisions789. It states: ‘This Article does not apply to the issuance of a compulsory licence granted in relation to intellectual property rights, or to the revocation, limitation or creation of an intellectual property right, to the extent that the issuance, revocation, limitation or creation is consistent with the WTO Agreement.’

The foregoing exposition suggests that de lege lata exceptions targeting the expropriation standard are rare, with the notable exception of the aforecited provision of the US Model BIT that divests general regulatory activity of its indirectly expropriatory nature. In doing so, this type of clause resembles in its effect the jurisprudential doctrine of state police powers, a topic considered in Chapter XI790. ii. Exception to the expropriation standard modelled on the ECHR – A consideration de lege ferenda? Protection against expropriation is also enshrined as a fundamental right under international human rights conventions. Notably, the European Convention on Human Rights affords such protection in its first Protocol but subjects it, inter alia, to some general interest safeguards, thus allowing the state some regulatory leeway. The present section considers the appropriateness of the de lege ferenda drafting of an exception to expropriation modelled after the ECHR. Article 1 Protocol One ECHR provides: ‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.’ 791

789 A similar provision also exists in Article 1110(7) NAFTA and in Article 6(5) US Model BIT (2012), the latter making specific reference to the TRIPS Agreement. 790 Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation). 791 Article 1, Protocol One of the ECHR.

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Within investment law, this provision has been emulated, in almost verbatim language, in Norway’s defunct 2007 Draft Model BIT792. Although not yet actually incorporated in investment treaties, in a July 2012 ‘Right to regulate’ roundtable organised by the Dutch Ministry of Economic Affairs, Agriculture and Innovation, a majority of participants found in favour of the incorporation of an ECHR-like provision on expropriation in future EU investment treaties793. The EU proposal in a February 2013 draft of the CETA Investment Chapter offered an interesting alternative. According to this clause: ‘Subject to the principle of proportionality, non-discriminatory measures of general application taken by a Party that are designed to protect legitimate public policy objectives do not constitute indirect expropriation if they are necessary and are applied in such a way that they genuinely meet the public policy objectives for which they are designed’794.

Circumspection is, of course, necessary when drawing parallels between protections bestowed on investors under investment treaties and the inter-

792 Article [6] (Expropriation) Norwegian Draft Model BIT (2007) establishes: ‘1. A Party shall not expropriate or nationalise an investment of an investor of the other Party except in the public interest and subject to the conditions provided for by law and by the general principles of international law. 2. The preceding provision shall not, however, in any way impair the right of a Party to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.’ Hoever, the first paragraph retains the phrasing that lays down a state obligation, rather than a right for the investor, such as ‘no investor shall be deprived of its property’. 793 This is the already mentioned ‘Right to regulate’ roundtable, organised by the Dutch Ministry of Economic Affairs, Agriculture and Innovation on 13 July 2012. 794 Paragraph 3, Annex on expropriation proposed by the EU in the Draft CETA Investment Text of 7 February 2013, leaked at http://tradejustice.ca/pdfs/CETA_Investment_Rules_%20February7_2013.pdf (emphasis added). This provision does not exist in the more recent May 2013 CETA Draft, where it has been replaced by a third paragraph in the annex on expropriation, according to which: ‘For greater certainty, except in the rare circumstance where the impact of the measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures by a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.’

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national protection of human rights’795. First, the purpose of the ECHR is different to that of an investment treaty. Where an investment treaty’s existence is justified by the wish of the parties to promote and protect investment in their respective territories, the ECHR is an international human rights instrument that aims at the recognition and observance of human rights796. Secondly, protection under the ECHR may be concurrent with investor protection under an IIA, and recourse to investment arbitration does not preclude a petition to the European Court of Human Rights under the ECHR797. Since the raison d’être of the two systems is different, equally different is the reparation offered in case of breaches. ‘Just satisfaction’ afforded to the injured party by the ECtHR in case of a finding of violation798 typically consists of declaratory judgments that establish breaches of human rights under the Convention, potentially coupled with the award of damages and, more recently, also restitutio in integrum (where feasible)799. By contrast, the remedial practice of arbitral tribunals when a treaty violation is established consists in granting compensation only800. Last but not least, the ECHR anchors in self-executing language801 an express right of the state to enforce

795 For differences between the international protection of human rights and protections afforded under the investment regime and recourse to respective adjudication, see Alvarez, J. E. (2011a), op cit., p. 66-75, 373 et seq.; see further Schreuer, C. and Kriebaum, U. (2011), From Individual to Community Interest in International Investment Law, in Fastenrath, U. et al. (eds), From Bilateralism to Community Interest: Essays in Honour of Judge Bruno Simma, NY: OUP, p. 1088 et seq. and Alvarez, J. E. (2010a), op cit., p. 156-157. See also Ecuadorian President Correa’s statement of 25 June 2009, cited in Ben Hamida, W. (2011), op cit., p. 112. 796 See Preamble to the ECHR (‘Considering that this Declaration aims at securing the universal and effective recognition and observance of the Rights therein declared’, etc.). 797 Crawford, J. (2011), International Protection of Foreign Direct Investments: Between Clinical Isolation and Systematic Integration, in Hofmann, R. and Tams, C. (eds), International Investment Law and General International Law, Baden Baden: Nomos, p. 26. Cf. Article 55 ECHR (Exclusion of other means of dispute settlement) by virtue of which the parties undertake not to submit ‘a dispute arising out of the interpretation or application of this Convention to a means of settlement’ other than those provided in the ECHR (emphasis added). 798 Article 41 ECHR. 799 Nifosi-Sutton, I. (2010), The Power of the European Court of Human Rights to Order Specific Non-Monetary Relief: a Critical Appraisal from a Right to Health Perspective, Harv Hum Rts J 23. 800 Cf. Crawford, J. (2011), op cit., p. 27 and Alvarez, J. E. (2011a), op cit., p. 69-71. 801 See Chapter VIII, ‘The State considers’ – Self-Judging clauses.

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the laws it considers necessary to control the use of property under some circumstances. In this respect, the ECHR allows the state its far wider margin of appreciation802, what may be termed a veritable right to regulate, backed up by ECtHR jurisprudence. That said, notwithstanding the undisputable differences between human rights law and the investment law regime, it is not utopian, and may well be commendable, to envisage the inclusion of an ECHR-like expropriation article in future IIAs. This would present the advantage of ensuring a measure of balance and proportionality in the determination of expropriation. 5. The right to regulate and the free transfer of capital A staple of investment protection803, transfer of funds provisions guarantee free and without delay transfers in respect of a covered investment that encompass, inter alia, contributions to capital, returns, repayment of loans and proceeds from sale or liquidation of an investment or a part thereof804. At the same time, a substantial number of treaties contain exceptions to the free transfer of capital805. These exceptions are considered in the ensuing analyses. i. Exceptions relating to bankruptcy, securities’ trading, criminal offences, compliance with adjudicatory proceedings and the soundness of financial institutions One class of restrictions on free transfers concerns bankruptcy and creditor rights, trading in securities, criminal offences, adjudicatory proceedings and the maintenance of the integrity of financial institutions. These provisions

802 On the margin of appreciation doctrine, see Chapter VIII, The standard of review in the absence of a self-judging clause. 803 See UNCTAD (2000a), Transfer of Funds, UNCTAD/ITE/IIT/20, UNCTAD IIA Series, NY & Geneva: UN, p. 7. 804 E.g. Article 7(1) and (3) US Model BIT (2012), Article 5(1) German Model BIT (2009), Article 7 French Model BIT (2006). 805 UNCTAD (2007b), op cit., p. xii.

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are typically absent from the European treaty model806. The subsequent paragraphs give a tour d’horizon of these exceptions. The Canadian Model BIT establishes that a contracting party may prevent a transfer of funds through the ‘equitable, non-discriminatory and good faith application’ of its laws regarding bankruptcy, insolvency or the protection of creditors rights, issuing, trading or dealing in securities, criminal offences, financial reporting or record keeping of currency transfers when necessary to assist financial regulatory authorities or law enforcement, or ensuring the satisfaction of orders or judgments in judicial or administrative proceedings807. The clause accompanies the safeguard of free capital transfers, to permit, for instance, the function of host state insolvency legislation with regard to an insolvent investor whose funds are frozen808, where investment funds are attached on the basis of a monetary judgment issued against an investor809, or pursuant to a criminal sentence relating to money-laundering or terrorist activity or financing810. Equivalent provisions are present in the NAFTA811, the US Model BIT812, the CETA Draft Investment Text813, the Draft MAI814, as well as BITs concluded by the three NAFTA states, Australia, Japan and some Latin American countries815. Unusually, the 2011 Austrian Model BIT contains a comparable exception to the free transfer of investment funds provided that the measures ‘shall not be used as a means of avoiding the Contracting Party’s commitments or obligations’ under the agreement816. This provision, vaguely redolent of a ‘declaratory’ right to

806 E.g. see Article 5 German Model BIT (2009), Article 7(2) UK Model BIT (2008), Article 7 French Model BIT (2006), Article 7 Finnish Model BIT (2002), Article 6 Swedish Model BIT (2003). Contrast Article 9(4) Austrian Model BIT (2011) and Article [9](3) of the never-adopted (Draft) Norwegian Model BIT (2007). Contrast Article X.12(5) Draft CETA Investment Text of 31 May 2013, op cit. 807 Article 11(3) (also (5)) Canadian Model BIT (2012). 808 UNCTAD (2000a), op cit., p. 36. 809 UNCTAD (2000a), op cit., p. 35-36. 810 See also the express provision in Article 9(4) Austrian Model BIT (2011); see also below, The REIO exception and capital transfers (EU/BIT Judgments-related exception). 811 Article 1109(4) and (5) NAFTA. 812 Article 7(4) US Model BIT (2012). 813 Article X.12(5) Draft CETA Investment Text of 31 May 2013, op cit. 814 Section IV (4.6) (Transfers) Draft MAI. 815 UNCTAD (2007b), op cit., p. 62. 816 Article 9(4) Austrian Model BIT (2011).

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regulate and its ‘otherwise consistent with’ proviso817, raises high the threshold for the successful invocation of the exception and may in practice prove to be self-cancelling. Canada’s Model BIT contains two further exceptions to free capital transfers. The first one allows a party to prevent or limit transfers made by a financial institution ‘through the equitable, non-discriminatory and good faith application of a measure relating to maintenance of the safety, soundness, integrity or financial responsibility of financial institutions’818. The second allows a party to ‘restrict transfers of returns in kind in circumstances where [a party] could otherwise restrict those transfers under the WTO Agreement’819. Finally, a never-adopted provision in Norway’s Draft Model BIT allowed derogations to ensure ‘compliance with laws and regulations’ ‘concerning financial security or any other equivalent regarding the prevention and remedying of environmental damage’820. This somewhat ambivalent provision is not much clarified in the commentary accompanying the Draft Model821. ii. Temporary derogations in case of balance-of-payments crises and difficulties for monetary and exchange rate policies Some IIAs allow for temporary restrictions on capital transfers, sometimes qualified as ‘temporary safeguards’822, ‘safeguard measures’823 or ‘temporary safeguard measures’824, where a party experiences a severe balance-ofpayments crisis or monetary and exchange rate policy difficulties. Seldom

817 See Chapter VI, ‘Declaratory’ right to regulate. 818 Article 11(6) Canadian Model BIT (2012). 819 Article 11(7) Canadian Model BIT (2012). See also Article 1109(6) NAFTA, Section IV (4.5) (Transfers) Draft MAI. 820 Article [9](3)(ii)(d) Norwegian Draft Model BIT (2007). 821 Government of Norway (2007), op cit., point 4.2.7. 822 Section VI (Exceptions and Safeguards) Temporary Safeguard Draft MAI. 823 Article 7(2) UK Model BIT. 824 Article 6 Agreement on Investment between Korea and Iceland, Liechtenstein and Switzerland (2005), Article 97 Japan-India CEPA (2011), Article 19 Japan-KoreaChina investment agreement (2012); also Article XX.3 of the leaked TPPA investment chapter draft, op cit.

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encountered at the bilateral level825, the exception in its variations is present in plurilateral treaties, so much inotably in the NAFTA826, some Asian economic partnership agreements827, the OECD Codes of Liberalisation828 and, at the multilateral level, in the Draft MAI829. In one of its extended forms, the exception provides for measures not conforming to a party’s obligations relating to cross-border capital transactions and free transfers ‘in the event of serious balance-of-payments and external financial difficulties or threat thereof’830 and ‘in cases where, in exceptional circumstances, movements of capital cause or threaten to cause serious difficulties for macroeconomic management, in particular, monetary and exchange rate policies.’831 Yet, by and large, temporary safeguards remain sporadic or, at least, concentrated

825 UNCTAD (2000a), op cit., p. 36, also 7; OECD Multilateral Agreement on Investment, Definition of “Investment” and General Safeguard Provisions, Note by the Chair, DAFFE/MAI/EG5(97)1, 14 January 1997, para. 10. But contrast the French and UK Model BITs and treaties concluded by these two countries: e.g. Article 7 French Model BIT (2006), Article 6 France-China BIT (2007), Article 6 FranceLibya BIT (2004), Article 7 France-Kenya BIT (2007), Article 7 France-Djibouti BIT (2007), Article 7(2) UK Model BIT (2008), Article 6(3) UK-Argentina BIT, Article 6 UK-Belize BIT (1982), Article 6 UK-Benin BIT (1987), Article 6(1) UKBolivia BIT (1988), Article 6(2) UK-China BIT (1986), Article 7(2) UK-Ethiopia BIT, Article 6(1) UK-Grenada BIT (1988), Article 7(1) UK-Hungary BIT (1987). See also Article 6 France-Bahrain BIT (2004), Article 6(6) BLEU-Mexico BIT and Protocol, para. 6, US-Sri Lanka BIT, Article 5(6) Germany-Pakistan BIT (2009), Article 6(1) UK-Egypt BIT (1976); but also Article 5(6) Germany-Pakistan BIT (2009). A temporary safeguards clause is also included in Article X.12(4) Draft CETA Investment Text of 31 May 2013, op cit., proposed by the EU. 826 Article 2104(1) NAFTA. Although drafted as a general clause, this provision appears to principally involve transfers of capital. On the NAFTA balance-of-payments exception, see further UNCTAD (2000a), op cit., p. 37-38. 827 E.g. Article 70 Indonesia-Japan EPA, Article 97 Japan-India CEPA (2011), Article 19(1) Japan-Korea-China investment agreement. 828 Respective Article 7(c) OECD Codes of Liberalisation (OECD (2011b), OECD Code of Liberalisation of Capital Movements: 2011 Edition, Paris: OECD (hereinafter OECD Code of Liberalisation of Capital Movements) and OECD (2010), OECD Code of Liberalisation of Current Invisible Operations – 2010 Edition, Paris: OECD). 829 Section VI, Temporary safeguard, para. 1. Under para. 7, ibid., it was further suggested that the above measures and ‘any changes therein that are approved by the International Monetary Fund in the exercise of its jurisdiction or determined to be consistent with this Article by the International Monetary Fund or the Parties Group cannot be subject to dispute settlement.’. 830 Article 19(1)(a) Japan-Korea-China investment agreement. 831 Article 19(1)(b) Japan-Korea-China investment agreement.

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in the treaty practice of a handful of countries. It is to be seen if the recent global financial crisis prompts more treatymakers to negotiate this type of exception. iii. The REIO exception and capital transfers (EU/BIT Judgments-related exception) The 2009 German Model BIT, promulgated one short year after its immediate predecessor and hardly changing an iota to the latter, added a cryptic short paragraph at the end of Article 5 regulating capital transfers. The paragraph states: ‘The provisions of this Article shall not be so construed as to prevent a Contracting State from fulfilling in good faith its obligations as a member of an economic and monetary union.’832

The present section will query into this particular REIO clause providing for possible restrictions on the free transfer of capital where such restrictions flow from the good faith fulfillment of the state’s obligations as member of a REIO. In order to better understand the function of this singular exception, the analysis begins with some background history on its emergence and continues with drafting models from recent BIT practice. In the aftermath of the terrorist attacks of 9/11, the UN Security Council adopted, and continues to adopt, a number of resolutions under Chapter VII of the UN Charter, freezing funds and other financial assets of individuals and entities suspected of fostering terrorism833. The EU, although not a Member of the UN, implements UN Security Council resolutions by issuing regulations, thus transposing UN Security Council resolutions into the European legal order and conferring on them de facto status of EU law834. 832 Article 5(4) 2009 German Model BIT. This phrasing has also been reflected in Article 5(7) of the 2009 Germany-Pakistan BIT. 833 For the ‘Security Council resolutions related to the work of the Committee established pursuant to Resolution 1267 (1999) concerning Al-Quaida and the Taliban and associated individuals and entities’, see http://www.un.org/sc/committees/ 1267/resolutions.shtml and http://www.un.org/Docs/sc/committees/1267/1267ResEng.htm; see further the UN Security Council Sanctions Committees general web page http://www.un.org/sc/committees/. 834 Lavranos, N. (2007), UN Sanctions and Judicial Review, Nordic J Int’l L 76, p. 3-4, where the author talks of ‘a ‘communitarisation’ of UN Security Council resolutions’.

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As briefly mentioned in the earlier discussion on REIO exceptions affecting the contingent standards, in May 2004, the European Commission initiated infringement proceedings against Austria, Denmark, Finland and Sweden835 concerning potential incompatibilities between bilateral investment treaties these states had concluded prior to their accession to the Union with EU law836. The alleged incompatibility consisted in the fact that the absence of explicit BIT exceptions allowing for restrictions on capital movements presented an impediment to the immediate implementation of potential EU freezing measures837. By virtue of Article 351(2) TFEU [ex-Article 307 (2) Treaty Establishing the European Community (EC Treaty)838], to the extent that the investment agreements at issue were not compatible with the EU Treaties, Member States would be under an obligation to take all appropriate steps to eliminate the incompatibilities. Consequently, the Commission estimated that the continued unaltered existence of the transfer clauses and the lack of any steps taken constituted a failure of the Member States in question to observe their obligations under Article 351(2) TFEU839. Of the four initiated infringement proceedings, three eventually reached the Court of Justice. These are the cases of the Commission v. Austria and Commission v. Sweden (delivered in parallel on March 3, 2009) and Commission v. Finland (delivered on November 19, 2009)840, in which the Court, largely endorsing the Commission’s position, held that potential restrictive measures adopted by the Council need to be capable of being immediately applied841 and that the lack of any relevant exceptions in the Member States’

835 Under current Article 258 TFEU. 836 See Press Release: Free movement of capital: infringement procedures against Denmark, Austria, Finland and Sweden [etc.], op cit. 837 See Press Release: Free movement of capital: infringement procedures against Denmark, Austria, Finland and Sweden [etc.], op cit. Restrictive Council measures may be adopted under Articles 57 (2), 59 and 60 (1) EC Treaty (broadly corresponding to current Articles 64 (2), 66 and 75 (1) TFEU). 838 See consolidated version, OJ C 325/33, 24.12.2002. 839 CJEU, C-205/06 Commission v. Austria [2009] ECR I-01301, C-249/06 Commission v. Sweden [2009] ECR I-1335 and C-118/07 Commission v. Finland [2009] ECR I-10889, para. 1. 840 These are respectively: Commission v. Austria, op cit., Commission v. Sweden, op cit. and Commission v. Finland, op cit. 841 Commission v. Austria, op cit., para. 35, 36, Commission v. Sweden, op cit., para. 36, 37, Commission v. Finland, op cit., paras 29-30.

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BITs is incompatible with the Treaties842. By not having taken appropriate steps to eliminate these incompatibilities, the Member States had failed to fulfil their obligations under EU law843. The Court also made clear that such incompatibilities were not limited to the BITs of the Member States defendant in the three cases844, therefore adverting to the fact that other Member State BITs could come into question. Although the cases were not judged until 2009, some model BIT changes took place in anticipation of the actual Court Judgments (below). And while the initial BITs that gave rise to the cases generally subsist – it is noteworthy that the Court did not enjoin the Member States to terminate these BITs845 – subsequent BIT practice appears mindful of the Court’s Judgments. Apart from the 2009 German Model BIT, newer treaties concluded by EU Member States have incorporated analogous REIO clauses846. Already in 2006, the French Model BIT integrated an exception to the free transfer of capital to accommodate a party’s obligations deriving from its participation in a REIO847. The turning point in French treaty practice appears to have been the institution of the Commission’s infringement proceedings in the aforementioned cases and the first French BIT to reflect this transformation is the 2006 France-Turkey BIT848. All subsequent French BITs available for examina-

842 Commission v. Austria, op cit., para. 37, Commission v. Sweden, op cit., para. 38, Commission v. Finland, op cit., para. 31. 843 Commission v. Austria, op cit., para. 45, Commission v. Sweden, op cit., para. 45, Commission v. Finland, op cit., para. 50. 844 Commission v. Austria, op cit., para. 43, Commission v. Sweden, op cit., para. 43, Commission v. Finland, op cit., para. 34. 845 See conclusions to Commission v. Austria, op cit., Commission v. Sweden, op cit., Commission v. Finland, op cit. 846 E.g. Article 7(2) Lithuania-India BIT (2011), Article 8(5)(e) Slovenia-India BIT (2011). 847 The last subparagraph of Article 7 French Model BIT (2006) contains the following exception: ‘Les dispositions des alinéas précédents du présent article, ne s’opposent pas à l’exercice de bonne foi, par une Partie contractante, de ses obligations internationales ainsi que de ses droits et obligations au titre de sa participation ou de son association à une zone de libre échange, une union douanière, un marché commun, une union économique et monétaire ou toute autre forme de coopération ou d’intégration régionale.’. 848 This is the first French BIT to be concluded since the onset of the Commission’s infringement proceedings. The exception is contained in the Protocol to the BIT, possibly reflecting its newness and the fact that it was probably not deliberated during the conduct of the main negotiations.

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tion at the time of writing include the exception849. It is of interest to note that the REIO exception relating to the non-discrimination standards continues to exist separately in these treaties850. Likewise, the Austrian Model BIT has responded to the need to forestall potential incompatibilities with EU law, by introducing a provision to the effect that nothing in the agreement shall be construed ‘to prevent a Contracting Party from fulfilling its obligations as a member of an economic integration agreement such as a free trade area, customs union, common market, economic community, monetary union, e.g. the European Union’.851 This provision was conspicuously absent from the 2002 version of the Austrian Model Treaty852, while during the infringement proceedings against Austria, it was submitted that ‘in the course of the revision being undertaken of the Austrian model bilateral investment agreement, the adoption of a ‘regional economic international organisation’ (REIO) clause was envisaged, which would take into account the possible restrictions on the free movement of capital which might be decided upon by the Union or the Community’853. Nonetheless, this clause is included in the model treaty’s provision on Treatment of investments854 rather than in its Article 9 on Transfers. It is also different from the rest of the REIO clauses presently examined, in that it is in fact a general exception: it does not apply specifically to a particular standard but to all treaty obligations (‘No provision of this Agreement’)855. The advantage of this formulation of the Austrian Model BIT is that it does not limit itself to the issues that have come up through the Court’s Judgments but anticipates other potential incompatibilities with EU law. REIO provisions relevant to free capital transfers also appear in new UK treaties making an express reference this time to the United Kingdom’s participation in the European Union. This exception, already present in the 2005

849 See Article 6 France-China BIT (2007), Article 7 France-Djibouti BIT (2007), Article 7(7) France-Kenya BIT (2007) and Article 7 France-Senegal BIT (2007). 850 E.g. see Article 4 France-China BIT, Article 5 France-Djibouti BIT and Article 4(4) France-Kenya BIT. 851 Article 3(4)(b) first sentence Austrian Model BIT (2011). 852 See Article 7 Austrian Model BIT (2002). Cf. Article 3(4)(a) Austrian Model BIT (2002). 853 Commission v. Austria, op cit., para. 7. 854 Article 3 Austrian Model BIT (2011). 855 Article 3 Austrian Model BIT (2011). On general exceptions, see below, The right to regulate as a general regulatory clause.

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UK Model BIT856, has been broadened in the 2008 Model857, and figures in the recent UK-Ethiopia (2009) and UK-Colombia (2010) BITs858. The stipulation concerns requirements that may arise owing to the UK’s membership of the Union, rather than privileges, which are covered by the usual REIO clause, in the same Article859. However, the UK Model BIT, as the 2009 UK-Ethiopia BIT which is based upon it860, appears to mix the exception canvassed here with a typical REIO exception to the contingent standards, in stating that the national and most-favoured-nation treatment shall not be construed to extend: ‘the benefit of any treatment, preference or privilege resulting from […] any requirements resulting from the United Kingdom’s membership of the European Union including measures prohibiting, restricting or limiting the movement of capital to or from any third country’861.

An oxymoron is revealed in the phrasing that links ‘benefits’ to ‘requirements’ on the United Kingdom. The more recent UK-Colombia BIT, which allows the inference of improvement, contains a more opportune formulation, to the effect that: ‘The provisions of this Agreement shall not be construed so as to prevent the United Kingdom from implementing any requirements resulting from the United Kingdom’s membership of the European Union with respect to measures prohibiting, restricting or limiting the movement of capital to or from any third State.’862

However, neither this provision seems a downright success in its positioning in the treaty, since it contains exceptions to the free transfer of capital before

856 Article 7(1)(c) UK Model BIT (2005). 857 Article 7(1)(c) UK Model BIT (2008). In contrast with its 2005 predecessor this exception is not limited to measures restricting freedom of capital movement. 858 Between 2003 and the 2009 conclusion of the UK-Ethiopia BIT, the UK concluded only 3 BITs, with only one of them (the UK-Mexico BIT) concluded after the promulgation of the 2005 Model BIT (2006). To the best of the author’s knowledge, the 2009 UK-Ethiopia BIT is the first to employ the exception. It has not been possible to examine the 2005 Model BIT’s predecessor, as this is not publicly available, however the 1991 UK Model BIT, contained an exception identical to that of Article 7(c) of the 2005 Model, but for the missing last paragraph containing the REIO clause discussed here. 859 Article 7(1)(a) UK Model BIT (2008). 860 Article 7(1)(c) UK-Ethiopia BIT. 861 Article 7(1)(c) UK Model BIT (2008). 862 Article IV(3) UK-Colombia BIT.

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the free transfers guarantee has been enounced863. In confining its subjectmatter to requirements relating to capital transfers it is narrower than the 2008 UK Model BIT, and, at the same time, it is formulated as a general exception (‘The provisions of this Agreement’). In closing, it may be reiterated that this new REIO clause is deeply influenced by the BIT Judgments of the Court of Justice concerning limitations on the freedom of capital movement. That said, although classified here as an exception to the latter, this is in fact a much wider REIO clause that, depending on the wording of each provision, is sometimes a general exception covering any derogation from BIT standards in order to comply with an obligation under the REIO. 6. The right to regulate and performance requirements Performance requirements are obligations enjoining investors to meet certain conditions with respect to their establishment, presence and operations in the host state864. Although the majority of investment treaties are silent on the issue of performance requirements865, in North American treaty practice these ‘host country operational measures’866 are often prohibited867. The present section discusses exceptions accompanying performance requirements provisions in the NAFTA and in the Canadian and US Model BITs.

863 The Free transfer of investments and returns provisions comes in the following Article, Article V. 864 UNCTAD (2003d), Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries, UNCTAD/ITE/IIA/2003/7, NY & Geneva: UN, p. 2. 865 For some objections to an unmitigated ban on performance requirements, see European Parliament (1998), Report containing Parliament’s recommendations to the Commission on the negotiations in the framework of the OECD on a multilateral agreement on investment (MAI), 26.2.1998, A4-0073/98, Part A. Motion for a Resolution, paras 12-13, see also Part B. Explanatory Statement, para. 11. 866 See UNCTAD (2001c), Host Country Operational Measures, UNCTAD/ITE/IIT/ 26, UNCTAD IIA Series, NY & Geneva: UN. 867 Prohibition of performance requirements is also to be encountered in some Asian treaties, such as the ASEAN CIA (Article 7) and the Japan-Singapore EPA (Article 75), and, in all probability, in EUIAs, e.g. see Article X.5 Draft CETA Investment Text of 31 May 2013, op cit.

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In the NAFTA, performance requirements are dealt with in Article 1106. After the enumeration of a list of prohibited performance requirements868, the article stipulates that measures requiring an investment to utilise ‘a technology to meet generally applicable health, safety or environmental requirements’ shall not be construed to be inconsistent with the treaty869; and that the prohibition of performance requirements relating to the receipt or continued receipt of an advantage870 shall not be construed to prevent a party from conditioning this ‘on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development, in its territory’871. The prohibition of performance requirements is further circumscribed by means of a singular exception, contained in Article 1106(6) NAFTA. With phrasing sharply reminiscent of general exceptions clauses modelled after Article XX GATT872, this article establishes: ‘Provided that such measures are not applied in an arbitrary or unjustifiable manner, or do not constitute a disguised restriction on international trade or investment, nothing in [the prohibition of selected performance requirements by the same article] shall be construed to prevent any Party from adopting or maintaining measures, including environmental measures: (a) necessary to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; (b) necessary to protect human, animal or plant life or health; or (c) necessary for the conservation of living or non-living exhaustible natural resources.’873

Despite the resemblance the provision bears to a general exceptions clause, it is a specific exception, solely applicable to individually identified performance requirements. This provision is also reflected in Article 8(3)(c) US Model BIT and in some FTAs concluded by Mexico874, but it is absent from Canada’s Model BIT, since a comparable exception is already operative through that treaty’s General Exceptions article875.

868 869 870 871 872 873 874

Article 1106(1) NAFTA. Article 1106(2) NAFTA. Article 1106(3) NAFTA. Article 1106(4) NAFTA. See below, General exceptions clauses modelled after Article XX GATT. Article 1106(6) NAFTA. E.g. Article 9-07(6) Mexico-Chile FTA (1998), Article 13-07(6) Mexico-Uruguay FTA (2003) and Article 11.7(6) Mexico-Peru FTA (2011). 875 Article 18(1) Canadian Model BIT (2012).

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The Canadian and US Model BITs contain exceptions to their performance requirements’ provisions concerning qualification requirements for goods or services in respect of export promotion and foreign aid programmes876, public procurement877, import requirements concerning the content of goods in order to qualify for preferential tariffs or quotas878. It is debatable whether all these exceptions are equally relevant in the investment as in the trade context. The exceptions relate to transfers of a particular technology, production process or other proprietary knowledge, requirements imposed or commitments enforced by a court or other judicial body under certain circumstances879 and authorisations for use of intellectual property rights in accordance with Article 31 TRIPS or measures requiring disclosure of proprietary information in accordance with Article 39 TRIPS880. In sum, although performance requirements are not as widespread as other investment protection standards, once inserted in a treaty they are generally accompanied by exceptions. The NAFTA clause modelled on Article XX GATT offers an atypical and interesting formulation of an exception inserted in the individual standards of treatment, and will be revisited in a later discussion881. 7. The right to regulate and provisions on compensation for losses Some treaties contain specific provisions, sometimes termed ‘war clauses’882, that address losses sustained owing to war or other armed conflict, revolution, insurrection, a state of emergency, civil strife and situations of a

Article 8(3)(d) US Model BIT (2012), Article 9(6)(a) Canadian Model BIT (2012). Article 8(3)(e) US Model BIT (2012), Article 9(6)(b) Canadian Model BIT (2012). Article 8(3)(f) US Model BIT (2012), Article 9(6)(c) Canadian Model BIT (2012). Article 8(3)(d-f) US Model BIT (2012), Article 9(6) Canadian Model BIT (2012). This exception is already present in the NAFTA, Article 1106(1)(f). 880 Article 8(3)(b) US Model BIT (2012). 881 Below, General regulatory clauses and the public interest (Performance requirements). 882 E.g. Schreuer, C. (2012), The Protection of Investments in Armed Conflicts, TDM 9 (3), p. 9 et seq. See also Total Decision on Liability, op cit., para. 229, incl. ft. 278, citing an UNCTAD document. 876 877 878 879

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similar nature883. This part of the chapter briefly introduces this rather infrequently-considered type of clause884 and questions its nature as an excuse for state measures taken under the circumstances. The latter part of the discussion considers exceptions specific to compensation for losses clauses. An illustration of a typical compensation for losses clause is offered by Article 6 of the Finnish Model BIT, which states, inter alia: ‘1. Investors of one Contracting Party whose investments in the territory of the other Contracting Party suffer losses owing to war or other armed conflict, a state of national emergency, revolt, insurrection or riot in the territory of the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or other settlement, a treatment no less favourable than the one accorded by the latter Contracting Party to its own investors or investors of the most favoured nation, whichever, according to the investor, is the more favourable. 2. Without prejudice to paragraph 1 of this Article, investors of one Contracting Party who, in any of the situations referred to in that paragraph, suffer losses in the territory of the other Contracting Party resulting from [requisitioning or destruction of its investment by the latter’s armed forces] shall be accorded by the latter Contracting Party restitution or compensation […].’885

The preceding paragraphs cover two kinds of treatment: non-discrimination in case of losses suffered due to war, etc., and compensation for expropriation. Although the provision guaranteeing non-discrimination in the compensation for losses context is sometimes to be found in isolation886, the latter type of clause regularly accompanies non-discrimination887. Concurrently, it becomes quite apparent that compensation for losses clauses are

883 On armed conflicts and their effects on treaties, see International Law Commission (2011), Effects of Armed Conflicts on Treaties (including Draft Articles on the Effects of Armed Conflicts on Treaties), in Report of the International Law Commission, 63rd session, A/66/10, NY: UN; International Law Commission (2010), Effects of Armed Conflicts on Treaties, in Report of the International Law Commission, 62nd session, A/65/10, NY: UN. 884 Exceptionally, see ibid.; also the Argentine awards cited in this section. 885 For examples of similar clauses on compensation for losses, see Article 4 UK Model BIT, Article 7 Dutch Model BIT, Article 4(3) German Model BIT, Article 8 Austrian Model BIT, Article 12 ECT, Article 7 Canadian Model BIT (2012), Article [7] Norwegian Draft Model BIT. Section IV(3) (Protection from strife) Draft MAI contained a similar provision. Cf. Article 1105(2) NAFTA and Article 5(4)-(6) US Model BIT. 886 Schreuer, C. (2012), op cit, p. 3, 9-10, 18. 887 Schreuer, C. (2012), op cit, p. 11. The two types of clause correspond to Schreuer’s ‘war clauses’ and ‘extended war clauses’ respectively, ibid., p. 9-10 and 11-14.

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divided between belonging thematically to the non-discrimination standards and protection against expropriation, although, as in the case of Finland’s Model BIT, the two types of treatment are often clustered together888. Some North American treaties include the compensation for losses clause within the minimum standard of treatment889. Compensation for losses provisions have been addressed by tribunals adjudicating recent Argentine cases, particularly with respect to the issue of whether this type of clause may function as an exculpatory defence for state measures taken in a ‘state of national emergency’890. The tribunals asserted that the compensation for losses provision precludes the operation of the necessity defence891, since this provision is specifically intended to apply to a situation of national emergency892; it is not ‘an escape clause for emergency cases’ but it purports to grant foreign investors national or most-favourednation treatment in such extreme circumstances893. Notably, some treaties expressly preclude invocation of customary law defences, for instance, in a situation of force majeure894. Exceptions to compensation for losses clauses need to be sought, in the main, among exceptions to the contingent standards and expropriation, as well as in some limited exceptions for government subsidies or grants895. A distinction potentially acquires relevance between treaties that introduce the exceptions within the respective standards of treatment, thereby arguably Contrast Article 6(3) French Model BIT; also Article III(3) US-Congo BIT (1990). E.g. Article 5(4),(6) US Model BIT (2012) and Article 1105(2),(3) NAFTA. E.g. under Article IV(3) US-Argentina BIT and Article 4 UK-Argentina BIT. On the necessity defence, see Chapter X, Necessity. See for example CMS Award, op cit., para. 375, LG&E Decision on Liability, op cit., paras 243-244, Enron Award, op cit., paras 320-321. See also the El Paso Tribunal’s finding that the compensation for losses clause ‘applies to measures adopted in response to a loss, not to measures that cause a loss’ and that therefore the provision had no bearing on the issues at hand and could not be relied upon to absolve Argentina from its responsibility, El Paso Award, op cit., paras 559-560. See further Suez, Sociedad General de Aguas de Barcelona S.A., Vivendi Universal S.A. v. Argentina, ICSID Case No. ARB/03/19 and Anglian Water Group (AWG) v. Argentina, UNCITRAL, Decision on Liability, 30 July 2010 (hereinafter AWG Decision on Liability), para. 270-271. 893 See Total Decision on Liability, op cit., para. 229-230. See further Newcombe, A. and Paradell, L. (2009), op cit., p. 500. 894 E.g. Article 8(1) Austrian Model BIT in conjunction with Article 23(2)(b) ILC Articles. On force majeure, see Chapter X, Force majeure and distress. 895 For exceptions for subsidies or grants, see Article 1105(3) NAFTA and Article 5(6) US Model BIT (2012).

888 889 890 891 892

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confining their application to these896, and IIAs that, such as the UK Model BIT or, a fortiori, Finland’s Model BIT, although addressing the particular standards, provide the exceptions in a free-standing article897. Even where the exception is prima facie limited to the contingent standards or expropriation, it may be possible to extend its application to the compensation for losses clause by analogy. By contrast, where the provision on compensation for losses is included in the minimum standard of treatment, it is doubtful whether derogations ought to be permitted from it898. In conclusion, compensation for losses clauses, a rare creature within international investment law, do not constitute an excuse or justification for state comportment in violation of treaty obligations and exceptions thereto are, by and large, to be found among exceptions to related protection standards. The extraordinary circumstances required for compensation for losses clauses to become applicable render their invocation unlikely in the majority of investment disputes. C. The right to regulate as a general regulatory clause (or general exceptions applicable to the entire treaty) 1. General remarks Another way of incorporating an express right to regulate in an IIA is to draft a general regulatory clause applicable to the entire treaty. In BIT practice, a two-pronged approach exists to drafting general regulatory clauses: on the one hand, there is the possibility of modelling the exceptions on Article XXI GATT, offering them unqualified application, and, on the other hand, that of modelling them on Article XX GATT, subjecting their successful invocation to the requirements of a chapeau or an equivalent formulation899. Canada’s Model BIT presents an important contribution to the right to regulate discussion, by combining the two types of provisions and epitomising the general exceptions’ approach in international investment law. Its Article

896 E.g. Article 6(3) French Model BIT (2006) and Article 3(2)-(5) German Model BIT (2009). 897 See Article 7(1) UK Model BIT (2008) and Article 4 Finnish Model BIT (2002). 898 See above, The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security. 899 See below, General exceptions clauses modelled after Article XX GATT.

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18, entitled General Exceptions, is worth citing (in subsequent sections, some of its provisions will be revisited to offer concrete examples of specific types of exceptions). ‘1. For the purpose of this Agreement: (a) a Party may adopt or enforce a measure necessary: (i) to protect human, animal or plant life or health, (ii) to ensure compliance with domestic law that is not inconsistent with this Agreement, or (iii) for the conservation of living or non-living exhaustible natural resources; (b) provided that the measure referred to in subparagraph (a) is not: (i) applied in a manner that constitutes arbitrary or unjustifiable discrimination between investments or between investors, or (ii) a disguised restriction on international trade or investment. 2. This Agreement does not prevent a Party from adopting or maintaining reasonable measures for prudential reasons, such as: (a) protecting investors, depositors, financial market participants, policy-holders, policy-claimants, or persons to whom a fiduciary duty is owed by a financial institution; (b) maintaining the safety, soundness, integrity or financial responsibility of financial institutions; and (c) ensuring the integrity and stability of a Party’s financial system. 3. This Agreement does not apply to non-discriminatory measures of general application taken by a public entity in pursuit of monetary and related credit or exchange rate policies. This paragraph shall not affect a Party’s obligations under Article 9 (Performance Requirements) or Article 11 (Transfers). 4. This Agreement does not: (a) require a Party to furnish or allow access to information if that Party determines that the disclosure of this information would be contrary to its essential security interests; (b) prevent a Party from taking an action that it considers necessary to protect its essential security interests: (i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment, (ii) taken in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices; or (c) prevent a Party from fulfilling its obligations under the United Nations Charter for the maintenance of international peace and security.

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5. This Agreement does not require a Party to furnish or allow access to information which if disclosed would impede law enforcement or would be contrary to the Party’s law protecting the deliberative and policy-making processes of the executive branch of government at the cabinet level, personal privacy or the confidentiality of the financial affairs and accounts of individual customers of financial institutions. […] 7. This Agreement does not apply to a measure adopted or maintained by a Party with respect to a person engaged in a cultural industry. […] 8. If a right or obligation in this Agreement duplicates one under the WTO Agreement, the Parties agree that a measure adopted by a Party in conformity with a waiver decision granted by the WTO pursuant to Article IX of the WTO Agreement is deemed to be also in conformity with the present Agreement. Such conforming measure of either Party may not give rise to a claim by an investor of one Party against the other under Section C of this Agreement.’900

Two preliminary comments are in order before embarking on an analysis of general exceptions clauses. First, divergent terminology in their respect calls for definitional questions to be considered first. For the purposes of this book, a general exceptions clause, or a general regulatory clause, is a provision that introduces exceptions applicable to the entire treaty, to wit, it permits derogations from any treaty obligation901. This clause is typically introduced by ‘nothing in this agreement shall be construed to prevent a party from’902 or ‘[t]his Agreement does not require a party to’903 or similar formulations904. General exceptions modelled after Article XX GATT combine this phrasing with the requirements of the chapeau or equivalent wording905. What may lead to confusion is that sometimes a general regulatory clause may equally be described as a ‘specific regulatory clause’ in that it is a spe-

900 Emphasis in original. 901 Exceptions to the exception clause, such as when the latter does not apply to the expropriation standard, do not affect the characterisation of the overarching clause as a general exception. 902 E.g. Article 10(1) and (2) Canadian Model BIT (2004), Article 14 Finnish Model BIT (2002). 903 E.g. Article 18(4)(a) and (5) Canadian Model BIT (2012). 904 E.g. Article 18(1)-(2) and (4)(b),(c)-(5) Canadian Model BIT (2012) (various paragraphs), 10(5) Canadian Model BIT (2004), Article 18 US Model BIT (2012), Article 3(4) Austrian Model BIT (2011). 905 See below, General exceptions clauses modelled after Article XX GATT.

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cific clause dealing with the host state’s right to regulate906. By the same token, a provision such as Article 7 UK Model BIT clustering that treaty’s exceptions, even though applicable to individually-identified standards only, may also be termed a ‘specific regulatory clause’; it is not however a general exception907. There has further been some debate in legal practice around the onomatology and legal nature of general exceptions clauses. A rather idiosyncratic declaration in a 1995 document relating to the MAI negotiations is revealing: with reference to the general exceptions it notes: ‘“General” means that they are applicable to all Members of the MAI. It does not mean that they are applicable to all obligations.’908 This singular language appears however to have been abandoned in subsequent MAI documents909. Secondly, general regulatory clauses may be drafted so as to either cover particular types of public interests, or contain examples of public interests910. A dilemma that treaty negotiators have to grapple with in this respect consists in deciding between ‘drafting the clause in too general terms, risking thereby the loss of its effectiveness’ or ‘drafting it too explicitly, enumerating its specific domains, in which case the risk consists in the possible incompleteness of the enumeration’911. Within the wider context of general exceptions clauses, some of which will be examined with respect to specific regulatory interests in Chapter IX, the subsequent sections will consider general regulatory clauses and the public interest, in other words they will concentrate on general exceptions modelled after Article XX GATT. Consideration will also be given to some particular questions, namely the relevance of GATT/WTO jurisprudence to this class of exceptions and the significance of the chapeau or equivalent

906 See Markert, L. (2011), op cit., p. 161. 907 See above, The right to regulate in the respective standards of treatment (General remarks). 908 OECD Multilateral Agreement on Investment, General Exceptions, Country Specific Reservations, Temporary Derogations, Note by the Chairman, DAFFE/ MAI(95)6, 21 November 1995, para. 4. 909 E.g. compare with Section VI (Exceptions and Safeguards), General Exceptions, Draft MAI. 910 See further Markert, L. (2011), op cit, p. 161, who identifies another possibility, that of a clause offering the state ‘unfettered’ regulatory freedom. 911 Paraphrasis of an ILC statement in relation to the eiusdem generis principle in ILC Draft Articles on Most-Favoured-Nation Clauses, ILC (1978), op cit., Commentary to Articles 9 and 10, p. 29, para. 6.

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formulations for specific standards of treatment and certain regulatory interests. 2. General regulatory clauses and the public interest (‘General exceptions’ modelled after Article XX GATT or the right to regulate by subject: the public interest) i. General exceptions clauses modelled after Article XX GATT While, as already mentioned, exceptions clauses have existed since the inception of the international investment law universe912, the introduction of general exceptions clauses modelled after Article XX GATT is a relatively new phenomenon. It is, however, one that appears to be rapidly gaining momentum, with such clauses making their way in new treaties913. The ensuing discourse proceeds in two stages: first, it explores general exceptions modelled after Article XX GATT and ventures some reflections de lege ferenda; the second part of the analysis focuses on the legal implications of modelling a general exceptions clause on Article XX GATT. With the notable exception of Canada’s Model BIT914 and BITs concluded by that country915, the clauses canvassed here, have until now remained comparatively scarce in bilateral investment treaties916, but are increasingly to be found in free trade agreements and sectoral or other economic partnership agreements comprising investment chapters917, such as the Energy Charter Treaty918, the Australia-Singapore FTA (SAFTA)919, the ASEAN

912 See Chapter Chapter III, The right to regulate in context (Introduction). See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 312-313, 318 et seq. 913 See below. 914 Article 18(1) Canadian Model BIT (2012). 915 For example, Article 10(1) Canada-Peru BIT (2006) (suspended, see note 779), Article XVII(3) Canada-Latvia BIT (2009), Article XVII(3) Canada-Romania BIT (2009), Article IX(1) Canada-Czech Republic BIT (2009), Article IX(1) CanadaSlovakia BIT (2010). 916 Newcombe, A. (2011), op cit., p. 358-359; Newcombe, A. and Paradell, L. (2009), op cit., p. 500-501. 917 Newcombe, A. (2011), op cit., p. 359; Newcombe, A. and Paradell, L. (2009), op cit., p. 500. 918 Article 24 ECT. 919 Article 21, Chapter 8 (Investment), of the September 2011 amended SAFTA text.

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CIA920, the ASEAN-Korea FTA921, the ASEAN-China Investment Agreement922 and, predictably, in the CETA923. A comparable approach adopted by some other treaties, typically FTAs, is that of, instead of modelling general exceptions after GATT, selecting to incorporate Article XX GATT and Article XIV GATS mutatis mutandis924 or to incorporate Article XIV GATS only925, with regard to their investment chapters. It is worth taking a closer look at some of these provisions. The Canadian Model BIT’s landmark Article 18(1) has already been cited. The Draft CETA Investment Text926 and Article [24] of Norway’s Draft Model Treaty, both entitled General Exceptions, contain a similar provision. The latter states that: ‘Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international [trade or] investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: i. to protect public morals or to maintain public order; ii. to protect human, animal or plant life or health; iii. to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; iv. for the protection of national treasures of artistic, historic or archaeological value; or v. for the protection of the environment’927.

Article 17 (General Exceptions) ASEAN CIA offers another example of a treaty encompassing general exceptions modelled after Article XX GATT. Although bearing a close resemblance to the aforecited provisions, it comprehends nonetheless a peculiarity worth noting. This provision establishes

920 921 922 923 924 925 926 927

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Article 17 ASEAN CIA (2009). Article 20 ASEAN-Korea FTA. Article 16 ASEAN-China Investment Agreement. See Article X.19 Draft CETA Investment Text of Article X Draft CETA Investment Text of 31 May, op cit. E.g. China-New Zealand FTA (Article 200). The complex provisions of that article repeating part of Article XX GATT provisions after explicitly incorporating these in the text raise questions about the significance of such incorporation. E.g. Australia-Thailand FTA (Article 1601), Panama-Singapore FTA (Article 18.1(2)) and ASEAN-Australia-New Zealand FTA (AANZFTA) (Article 1(2) of Chapter 15). Article X Draft CETA Investment Text of 31 May 2013, op cit. Footnotes omitted.

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that, subject to the requirements of the chapeau, nothing in the treaty shall prevent the parties from taking measures ‘necessary to secure compliance with laws or regulations which are not inconsistent with this Agreement’ and it proceeds to include a list of examples928. This stipulation is not unique to the ASEAN CIA: Article XX GATT, NAFTA Article 2101(2), although bearing no influence on NAFTA’s investment chapter, the Canadian Model BIT929 and the CETA Draft of 7 February 2013930 contain a similar provision. The clause needs to be meticulously approached. Although prima facie, in requiring consistency with the overarching agreement, it resembles a different kind of provision, that embodying a ‘declaratory’ right to regulate931, a closer reading reveals that the article permits, in effect, derogations from the treaty’s protections. Consistency with the agreement is not required of the government measures but of the laws or regulations which the measures are necessary to secure compliance with. Having established the presence of general exceptions modelled after Article XX GATT, the analysis will now move to the legal implications of these provisions. In contrast with security exceptions932, general exceptions modelled after Article XX GATT provide for a strongly conditional right to regulate933. While the former designate a policy area in which the host state may digress from IIA standards when it sees fit – this may be more or less so depending on whether the exception is couched in self-judging language or not934 – general exceptions modelled after Article XX GATT typically require an objective assessment of the nexus requirement935 (i.e. they are not self-judging) and, most crucially, subject pursuit of the enumerated objectives to a chapeau936.

928 929 930 931 932 933

Article 17(1)(c) ASEAN CIA. Emphasis added. Article 18(1)(a)(ii) Canadian Model BIT (2012). Article X(1) Draft CETA Investment Text of 31 May 2013, op cit. See Chapter VI, ‘Declaratory’ right to regulate. On the formulation of these, see Chapter IX, Essential security interests. See further GATT Panel Report, United States – Restrictions on Imports of Tuna, op cit., para. 5.22; GATT Panel Report, United States Section 337 of the Tariff Act of 1930, op cit., para. 5.9; also, Robert-Cuendet, S. (2010), op cit., p. 49; Newcombe, A. and Paradell, L. (2009), op cit., p. 506. 934 See Chapter VIII, ‘The State considers’ – Self-Judging clauses. 935 See Chapter VIII, The nexus requirement and The standard of review in the absence of a self-judging clause. 936 Exceptionally, some treaties dispense with the chapeau for subjects normally treated as general exceptions in the GATT Article XX sense. E.g. Article 66 Japan-Philippines EPA and Article 15(1)(c) Japan-Vietnam BIT.

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Described as an ‘expression of the principle of good faith’937 the chapeau is an introductory paragraph setting out specific requirements relating to the manner of application of the measures for which derogation is permitted938. Sometimes, the chapeau gives place to equivalent phrasing which concludes the exception939. For the sake of simplicity, the term chapeau is sometimes used in the book to encompass such similar formulations. According to these requirements, government measures must be applied in a manner which would not constitute ‘a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail’940, or ‘between investments or between investors’941, ‘or a disguised restriction on international trade’942 or investment943. (It is doubtful whether reference to a disguised restriction on international ‘trade’ in investment treaties944, is not simply a vestige of WTO law945.) Despite a seeming resemblance these stipulations bear to substantive standards of protection against discrimination or the guarantee of fair and equitable treatment946, the chapeau does not constitute a standard of its own947. There is a stark conceptual difference between the two: in contrast with the former, the chapeau does not create obligations for the host state or rights for investors, rather it looks at the manner government measures taken in derogation of substantive treaty pro-

937 WTO Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 12 October 1998, DSR 1998: VII, 2755 (hereinafter US-Shrimp AB Report), para. 158. See also, Newcombe, A. and Paradell, L. (2009), op cit., p. 504 and Weiler, T. (2004), op cit., p. 38. 938 E.g. Article 10(1) Canadian Model BIT (2004), Article XX GATT. 939 E.g. Article 18(1) Canadian Model BIT (2012), Article 24(2) ECT. 940 Article XX GATT. 941 Article 18(1)(b)(i) Canadian Model BIT (2012); Article 24 2007 Norwegian Draft Model BIT; Article 24(2) ECT combines the two versions. 942 Article XX GATT. 943 Article 17(1) ASEAN CIA and Section VI (Exceptions and safeguards) General exceptions, para. 3 Draft MAI. 944 E.g. Article 18(1)(b)(ii) Canadian Model BIT (2012) and Article [24] 2007 Norwegian Draft Model BIT, although the latter contemplated leaving trade out (‘[trade] or investment’). 945 Cf. UNCTAD (2009a), op cit., p. 84. 946 Markert, L. (2011), op cit., p. 167. 947 See US-Gasoline AB Report, op cit., p. 23; US-Shrimp AB Report, op cit., para. 150. Cf. Markert, L. (2011), op cit., p. 167.

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tections are applied948. Devoid of self-standing, it may only become relevant once a digression from a substantive standard has been established. Inasmuch as it imposes on the host state a measure of fairness and functions as a safety net against exception abuses949, it appears as a useful device to achieve an appropriate balance of interests950. In conclusion, general exceptions clauses modelled after Article XX GATT are an important component in states’ attempt to reserve policy space, given that they are dedicated to offering regulatory freedom – subject to compliance with the chapeau –, they are applicable to the entire treaty and cover a large and varied range of public interests. Their very formulation, notably their resemblance to Article XX GATT and the presence of the chapeau, raise dilemmas and invite further discussion, to which the following sections now turn. ii. Relevance of GATT/WTO jurisprudence Mindful of the fact that the general exceptions clauses discussed above are modelled after Article XX GATT, or Article XIV GATS, or incorporate the latter mutatis mutandis951, it may be opportune to enquire into the suitability of drawing on principles of GATT/WTO jurisprudence during the investment arbitration process. This question is pertinent not only to general exceptions modelled after Article XX GATT but also other investment treaty provisions fashioned after GATT articles. The present section gives a brief consideration to this issue. Some of the tribunals in the Argentine crisis cases, when uncertain about the interpretation of the ‘necessary for’ nexus requirement952 in the US-Argentina BIT’s essential security interests exception, turned to customary law

948 See GATT Panel Report, United States – Imports of Certain Automotive Spring Assemblies, L/5333, adopted 26 May 1983, BISD 30S/107, para. 56, on the chapeau of Article XX GATT. 949 Newcombe, A. and Paradell, L. (2009), op cit., p. 504; Markert, L. (2011), op cit., p. 167; Cosbey, A. (2005), p. 165. See also US-Gasoline AB Report, op cit., p. 22; WTO Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, 1527, para. 224. 950 Markert, L. (2011), op cit., p. 169. 951 See above, General exceptions clauses modelled after Article XX GATT. 952 See Chapter VIII, The nexus requirement.

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for guidance, observing that ‘necessity and the conditions for its operation’ are determined under customary law953. Yet this approach, besides equating the ‘necessary for’ nexus with the necessity defence under customary law954, suggests another potential oversight in neglecting that the ‘necessary for’ requirement has also been interpreted in a discipline with a close affinity to investment law, namely in GATT/WTO law. Indeed, in another arbitration, the Continental Casualty Tribunal addressed forthrightly the issue. Although not dealing with a general exception modelled after Article XX GATT, rather one modelled after Article XXI GATT, the tribunal stated that for the very reason that Article XI US-Argentina BIT echoes GATT language, it would be ‘appropriate to refer to the GATT and WTO case law which has extensively dealt with the concept and requirements of necessity in the context of economic measures derogating to [sic] the obligations contained in GATT, rather than to refer to the requirement of necessity under customary international law.’955 Decisions in WTO law, although not pertaining to investment disputes, may be capable of offering a better understanding of themes and issues that on occasion may not be that disparate whether encountered within in investment or in trade law956. Nevertheless, caution must be exercised when drawing parallels between the two systems. Despite the commonalities between them, investment law and trade law do not cease to be two different universes regulating in principle dissimilar relationships957. This in itself is not a bar to invoking GATT or WTO jurisprudence but, all things considered, tribunals are under no obligation to draw on WTO law any more than they

953 Sempra Award, op cit., para. 376. See also Enron Award, op cit., paras 333-334 and Chapter X, Necessity. 954 See Chapter VIII, The nexus requirement and Chapter X, Necessity. 955 Continental Casualty Award, op cit., para. 192. Contra: Alvarez, J. E. (2011a), op cit., p. 301 et seq. and Alvarez, J. E. and Brink, T. (2012), Revisiting the Necessity Defense: Continental Casualty v. Argentina, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2010-2011, NY: OUP, p. 335-352. 956 UNCTAD (2009a), op cit., p. 51. See further Newcombe, A. and Paradell, L. (2009), op cit., p. 504; Newcombe, A. (2011), op cit., p. 364; Alvarez, J. E. (2011a), op cit., p. 338. 957 DiMascio, N. and Pauwelyn, J. (2008), op cit., p. 53-58; Legum, B. and Petculescu, I. (2013), op cit., p. 351 and passim; see also Alvarez, J. E. (2008), Implications for the Future of International Investment Law, in Sauvant, K. P. and Chiswick-Patterson, M. (eds), Appeals Mechanism in International Investment Disputes, NY: OUP, p. 31; UNCTAD (2002), op cit., para. 20. Cf. Alvarez, J. E. and Brink, T. (2012), op cit., p. 335-352.

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are compelled to draw on other systems, such as human rights law. Ultimately, much will depend on the persuasiveness of counsel argumentation958. iii. Relevance of general exceptions clauses modelled after Article XX GATT to specific standards of treatment and regulatory interests General exceptions modelled after Article XX GATT have the advantage of simplicity and clarity over alternative approaches: a single clause deals with the right of states to regulate, acting as a belts-and-braces provision959 for reasonable regulation in the public interest, while the non-discrimination requirement in the chapeau imposes a degree of fairness and curbs the potential for abuse960. However, the relevance of general exceptions’ modelled after Article XX GATT to some standards of treatment or specific regulatory interests may be questioned and the opinion has been expressed that these clauses are not well-suited to international investment law961. The question is one of knowing whether there is in fact scope for application of general exceptions thus designed to particular standards and regulatory interests, owing to the constraints imposed by the chapeau, and, most notably, its requirement for non-arbitrarily and non-unjustifiably discriminatory application of the state measure concerned. To this end, this part of the chapter addresses directly the relevance of general exceptions modelled after Article XX GATT to key standards of treatment, namely expropriation, national and most-favoured-nation treatment, the fair and equitable treatment, full protection and security and the minimum standard of treatment, capital transfers and performance requirements, and to specific regulatory interests, notably essential state security.

958 See also Methanex Corporation v. United States, UNCITRAL, Final Award on Jurisdiction and Merits, 3 August 2005 (hereinafter Methanex Final Award), Part II – Chapter B, para. 6 (‘the Tribunal may derive guidance from the way in which a similar phrase in the GATT has been interpreted in the past. Whilst such interpretations cannot be treated by this Tribunal as binding precedents, the Tribunal may remain open to persuasion based on legal reasoning developed in GATT and WTO jurisprudence, if relevant.’). 959 See Newcombe, A. (2011), op cit., p. 357. 960 See above, General exceptions clauses modelled after Article XX GATT. 961 See Legum, B. and Petculescu, I. (2013), op cit., p. 362. Cf. Lévesque, C. (2013), op cit., p. 143-144.

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An issue generally not treated here is that of the deontology of drafting these exceptions in the first place. The difficulties of reaching a decision as to whether to include one or another exception in a treaty are probably at the heart of treaty negotiations and there may be as many opinions on how to strike a balance as there are possible treaty formulations962. With the exception of direct expropriation and the minimum standard of treatment, the current section will therefore refrain from deontological considerations. a. Expropriation The opening question in this section is, however, one of deontology: should a general exceptions clause be permitted to override the investor’s interest in receiving prompt, adequate and effective compensation?963 The concern is not endemic to general exceptions of the type canvassed here but it is also pertinent to any kind of exceptions to the protection of property. The discussion that follows considers this question and, consequently, focuses on the appropriateness of the chapeau or equivalent phrasing when drafting an exception to expropriation. Protection of property, we have seen it, far from constituting the sole prerogative of investment treaties, is also recognised as a human right964. There is therefore an inference that expropriation provisions in investment treaties may belong to a type of standard so central to investment protection that no derogation should be permitted from them965. Accordingly, some

962 For a concise rendition of various considerations that come into play when attempting to achieve a balance of interests, see Walter, A. von (2011), op cit. See also Markert, L. (2011), op cit. 963 For literature on this dictum of the Hull formula, see note 13. 964 See above, The right to regulate and expropriation. In one case, the right to property was even asribed ius cogens nature: see CJEU, Joined Cases C-402/05 P and C-415/05 P. Kadi & Al Barakaat International Foundation v. Council and Commission [2008] ECR I-6351 and in particular in CJEU, Case T-306/01, Yusuf and Al Barakaat International Foundation v. Council and Commission [2005] ECR II-3533, para. 293. 965 See OECD Multilateral Agreement on Investment, Draft Article on General Exceptions, Note by the Chairman, DAFFE/MAI/DG2(95)2/REV1, 8 January 1996, p. 3 and MAI Commentary, op cit., p. 40.

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treaties render their general exceptions inapplicable to the expropriation standard and provisions on compensation for losses966. A particular concern raised in this context is that the apparent effect of general exceptions modelled after Article XX GATT is to deprive the investor of protections it would enjoy under customary law967. For instance, pursuant to the Canadian Model BIT’s exception ‘for the conservation of living or non-living exhaustible natural resources’968, should the state expropriate a foreign investor to create a national park for conservation purposes in conformity with the chapeau-equivalent requirements in the same article, no international responsibility shall arise and the state need not shoulder the typical compensation requirements969. It has been suggested that such exceptions could erode ‘the very principles of investment protection’ and that therefore treatymakers when drafting the exception should ensure that the state is not exempt from its duty to compensate an expropriation970. Nonetheless, the comparison with the protections under customary law leads to fallacious deductions, since, while customary law may grant a general right to compensation971, it is the investment treaty that gives the investor access to dispute settlement and a means for the enforcement of its rights972. What may appear troubling in the above construction is that the discussion here is on direct expropriation, since these facts are unlikely to give rise to a finding of an indirect expropriation under the Canadian Model BIT973. A consideration would be to draw a distinction between direct and indirect expropriation, and to only allow general exceptions modelled after Article XX GATT to function with respect to indirect expropriation. In this scenario,

966 Article 24(1) ECT; Article X(2) Draft CETA Investment Text of 31 May 2013, op cit., proposed by the EU; Section VI (Exceptions and Safeguards), General Exceptions, para. 1 Draft MAI. See also Article 14(3) Finnish Model BIT. 967 Newcombe, A. and Paradell, L. (2009), op cit., p. 505-506. 968 Article 18(1)(a)(iii) Canadian Model BIT (2012). 969 On compensation, see in particular Chapter II, The right to regulate: what’s in a name…. 970 Newcombe, A. and Paradell, L. (2009), op cit., p. 506; Markert, L. (2011), op cit., p. 165, ft. 82. 971 See above, The right to regulate and expropriation in general. 972 See in general Schreuer, C. (2007), Investment Protection and International Relations, in Reinisch, A. and Kriebaum, U. (eds), The Law of International Relations: Liber Amicorum Hanspeter Neuhold, Utrecht: Eleven International. 973 See Annex B.10(c) Canadian Model BIT (2012).

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the exceptions would be redundant in treaties such as the US and Canadian Model BITs, that already provide an exception to indirect expropriation974. It has further been pointed out that general exceptions modelled after Article XX GATT coincide to a large extent with the state’s police powers under customary international law975, therefore their role in this context is limited976. However, as is discussed later in the book, the doctrine of police powers is a jurisprudential creation rather than established customary law977. The upshot of this discussion is that, while some valid concerns may be raised as regards the application of a general exceptions clause of the Article XX GATT type to the expropriation standard, by and large, it appears possible to recognise some scope for its application, at least where indirect expropriation is concerned. b. National and most-favoured-nation treatment It is debatable whether general exceptions clauses with a chapeau or equivalent wording are relevant to the national and most-favoured-nation treatment978. Providing an exception to the non-discrimination standards will ex hypothesi authorise a discriminatory measure and there is an oxymoron in doubling a requirement for non-discrimination (in the standard and the chapeau) at the same time as introducing an exception to it. The analysis that follows will attempt to determine whether general exceptions with a chapeau or equivalent phrasing may find application in the national and the mostfavoured-nation treatment. As an illustration, Canada’s Model BIT reveals a requirement that the measure be not ‘applied in a manner that constitutes arbitrary or unjustifi-

974 See Annex B, para. 4(b) US Model BIT (2012) and Annex Annex B.10(c) Canadian Model BIT (2012) respectively. See also above, The right to regulate and expropriation in general. 975 On the state police powers doctrine, see Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation). 976 Legum, B. and Petculescu, I. (2013), op cit., p. 361-362. 977 Chapter XI, Arbitral jurisprudence and the legitimate interests of the host state (Expropriation). 978 For a contestation of the ‘necessity’ and ‘desirability’ of an Article XX GATT-like exception in investment law with reference to the national treatment, see Legum, B. and Petculescu, I. (2013), op cit., p. 352 et seq.

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able discrimination between investments or between investors’ or ‘a disguised restriction on international trade or investment’979. While the ‘disguised restriction on international trade or investment’ does not present any issues here, particular attention needs to be paid to the former elements of ‘arbitrary or unjustifiable discrimination’. The chapeau-like formulation does not expect the measure not to be discriminatory in general (this is the function of provisions on the national and most-favoured-nation treatment980) but sanctions only discrimination that is qualified as either ‘arbitrary’ or ‘unjustifiable’. It has been observed in a similar context, that of ‘unreasonable discrimination’, that ‘discrimination’ being a pejorative term, the adjective ‘unreasonable’ is a pleonasm981. Nonetheless, the very use of these adjectives denotes that there may be another kind of discrimination which is non-arbitrary and justifiable; effective treaty interpretation requires that these terms be given effect982. A relevant argument comes from WTO law, where the Appellate Body has ruled that: ‘The enterprise of applying Article XX would clearly be an unprofitable one if it involved no more than applying the standard used in finding that the baseline establishment rules were inconsistent with Article III:4 [on national treatment]. […] The provisions of the chapeau cannot logically refer to the same standard(s) by which a violation of a substantive rule has been determined to have occurred. To proceed down that path would be both to empty the chapeau of its contents and to deprive the exceptions in paragraphs (a) to (j) of meaning. Such recourse would also confuse the question of whether inconsistency with a substantive rule existed, with the further and separate question arising under the chapeau of Article XX as to whether that inconsistency was nevertheless justified. One of the corollaries of the “general rule of interpretation” in the Vienna Convention is that interpretation must give meaning and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.’983

The question then is to identify the scope of situations where discrimination is not arbitrary or unjustifiable. As a rule, non-arbitrary and justifiable discrimination arises where investors find themselves in dissimilar circum-

979 980 981 982 983

Article 18(1)(b) Canadian Model BIT (2012) (emphasis added). In casu, Articles 4 and 5 Canadian Model BIT. See Salmon, J. J. A. (1981), op cit., p. 455. On effective interpretation, see note 431. US-Gasoline AB Report, op cit. p. 23, footnote omitted. See further Shrimp AB Report, op cit., para. 150.

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stances984, such as in the event of a state measure that distinguishes between investors in different business sectors. Indeed, it is questionable whether such differential treatment even qualifies as discrimination985 and it is difficult to find examples of non-arbitrary and justifiable discrimination beyond these situations. However, in such a case an exception is not necessary, since justification for the state measure is anyway available on the authority of an implicit or explicit ‘in like circumstances’ test986. On the basis of the above reasoning, it is not entirely clear that general exceptions modelled after Article XX GATT are apt to find application in the contingent standards. The investment protections and the chapeau or equivalent phrasing appear broadly overlapping, so that the latter limits considerably the scope of the exception. The answer might have been different, if the ‘in like circumstances’ requirement were deemed to be absent from an understanding of the national and most-favoured-nation standards. c. Fair and equitable treatment, minimum standard of treatment and full protection and security The relevance of introducing an exception to the fair and equitable treatment and to full protection and security, especially when these standards are linked to the minimum international standard, is also in question. The limited relevance of exceptions to the fair and equitable treatment and to the minimum standard, in particular, has already been discussed987. The present section reflects on the appropriateness of applying general exceptions clauses modelled after Article XX GATT to these three standards. The objection has been advanced that it is difficult to imagine measures in contravention of the fair and equitable treatment or the minimum standard of treatment that satisfy the requirements of the chapeau988. If an investor is treated unfairly and inequitably, it is likely that this treatment will be found to be arbitrarily or unjustifiably discriminatory989 – if not a disguised re984 985 986 987

Cf. below, The chapeau and national security exceptions. See ibid. See above, The right to regulate and the ‘in like circumstances’ formula. See above, The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security. 988 Newcombe, A. and Paradell, L. (2009), op cit., p. 505; Newcombe, A. (2011), op cit., p. 368-369; see also Legum, B. and Petculescu, I. (2013), op cit., p. 354-356. 989 See also Legum, B. and Petculescu, I. (2013), op cit., p. 355-356.

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striction on investment – since it will be surprising if all investors are treated in the same arbitrary or unjustifiable manner. Nonetheless, in the event that this hypothesis is substantiated, e.g. if in a case of national emergency the state adopts measures that, despite being arbitrary and unjustifiable, find uniform application and impact all investors, there will be no discrimination, and the chapeau may be complied with. The chapeau will also not prevent successful appeal to the exception where an alleged violation of the FET standard is based on the sole interference with the investors’ legitimate expectations990. A measure may thwart the investor’s legitimate expectations, and so seemingly run afoul of the fair and equitable treatment, despite not being arbitrarily or unjustifiably discriminatory, or not constituting a disguised restriction on investment991. The argument has also been put forward that general exceptions modelled after Article XX GATT are not relevant to full protection and security, since that standard is infringed if the state does not afford investors ‘reasonable protection’992. In the latter cas de figure, the measure will probably fail the test of the chapeau993. Again, however, where state conduct is not arbitrarily or unjustifiably discriminatory, and does not constitute a disguised restriction on investment, despite not granting ‘reasonable protection’, the exception will be apt to find full application. In conclusion, it appears that despite not finding manifestly wide application, general exceptions modelled after Article XX GATT may be relevant to the fair and equitable treatment and full protection and security – at least when these are not pegged to the minimum international standard. Determination of the same for the minimum standard per se remains uncertain and pertains to the question of whether permissible derogations are at all possible from a standard which is already considered to be a ‘minimum’994.

990 991 992 993 994

Legum, B. and Petculescu, I. (2013), op cit., p. 356. Ibid. Ibid. See ibid. See above, The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security.

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d. Transfers of capital As regards free capital transfers, it has been pointed out that the specific exceptions typically drafted for this standard, for instance those addressing serious balance of payment difficulties995, are more opportune in its respect996. This does not mean that general exceptions modelled after Article XX GATT find no application in the case of transfers of capital, although admittedly such application may be somewhat limited. An example where Article XX GATT-like general exceptions would become relevant is in the case of a state measure freezing the funds of an investor engaged in illicit drug-trafficking in order to protect human health, where the underlying obligation does not contain a specific exception for criminal offences. e. Performance requirements Specific exceptions to performance requirements, such as those contained in NAFTA Article 1106 paragraph 6, bear a striking resemblance to general exceptions clauses modelled after Article XX GATT in that they require non-arbitrary or unjustifiable application of state measures, as well as that these shall not constitute a disguised restriction on trade or investment997. This congruence with Article XX GATT has led to the observation that general exceptions modelled after this Article would be mostly relevant in the case of performance requirements, at least insofar as the IIA does not already contain the standard-specific exception998. f. The chapeau (or equivalent) and national security exceptions Comparable concerns regarding the appropriateness of accompanying the exception with a chapeau or equivalent phrasing may be raised with respect to national security exceptions, exceptions relating to taxation measures or cultural diversity, or generally interests whose protection involves preferential treatment. The present section considers the suitability of the chapeau

995 996 997 998

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See generally above, The right to regulate and the free transfer of capital. Legum, B. and Petculescu, I. (2013), op cit., p. 358. See also Article 8(3)(c) US Model BIT (2012). Legum, B. and Petculescu, I. (2013), cit., p. 361.

C. The right to regulate as a general regulatory clause

or chapeau-like requirements for national security exceptions, as illustrative of the general problématique of accompanying with a chapeau exceptions for situations that involve some form of discrimination between investors. Since general exceptions clauses modelled after Article XX GATT have been found not to act upon the non-contingent standards999, the ensuing discussion covers possible claims other than those regarding the contingent standards. In practice, some treaties subject a state’s essential security interests to a chapeau or a requirement that state action taken be not discriminatory1000. It may be questioned whether such a formulation of the national security exception is not inadvertent1001, since the protection of a state’s national security may predictably require discrimination against foreign investors or against foreign investors of a particular nationality1002, or even against some types of investors1003. However, discrimination, and a fortiori arbitrary or unjustified discrimination, presupposes different treatment of similar situations1004, and where national security concerns arise, it is doubtful whether a foreign investor, or a foreign investor of a particular nationality, will be in a similar situation with, for example, a national investor1005. As a corollary, discrimination may well be considered justified and non-arbitrary and so fulfill the requirements of the chapeau. And while in the case of the contingent standards general exceptions clauses modelled after Article XX GATT were found to be inoperative because of the intrinsic comparative test1006,

999 See above, National and most-favoured-nation treatment. 1000 See for instance Article 19(1)(d) Japan-Peru BIT (2008), Article 99(1)(c) JapanPhilippines EPA, Article 13 of the ASEAN Framework Agreement (1998), Article 8 New Zealand-Hong Kong BIT and Article 15 Australia-India BIT. This also holds for Indian BIT practice, e.g. Article 12(2) Indian Model BIT. 1001 This in particular seems to be the case of the apparent submission of essential security interests to a chapeau in the EU negotiating directives of September 2011 (cited in Chapter III, Developments at the collective level), as also becomes evident from the suggestions in European Commission – Directorate General for Trade (2012), op cit., under heading III, para. 3 on Security exceptions. 1002 UNCTAD (2009a), op cit., p. 17-18. 1003 See for example the discussion on sovereign wealth funds in Chapter V, Essential security interests and access to strategic industries. 1004 Newcombe, A. and Paradell, L. (2009), op cit., p. 251. 1005 See UNCTAD (2009a), op cit., p. 17-18. 1006 See above, National and most-favoured-nation treatment and The right to regulate and the ‘in like circumstances’ formula.

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this idea is absent from the treatment of national security to render the exception redundant. Even so, a question remains: if applying an exception for national security presumes (justifiably) discriminatory treatment, what is the point of making the exception dependent on the terms of the chapeau? While it is difficult to conceive of a measure taken for the protection of a state’s national security that is applied in a non-discriminatory manner in the traditional interpretation of the term where national security is understood to refer to a military attack and episodes of a similar nature1007, in today’s wider interpretation, where security is understood to also comprise the protection of economic interests1008, situations may arise where there is indeed no justification for applying a state measure in a manner that discriminates between national and foreign investors or between foreign investors1009. This may be claimed with more reason for the non-arbitrary application of such measures. It is not evident that these interpretative nuances have necessarily been envisaged by treaty drafters. By and large, it appears that the requirement for non-discriminatory application of measures taken for the protection of essential security interests is not easily reconcilable with the nature of these interests and may induce legal uncertainty. Further interpretative challenges are posed where the chapeau introducing the security exception is coupled with self-judging language1010. It is quite possible that such formulations may on occasion leave no room for application of the exception, thereby rendering it unworkable in practice. D. Concluding remarks Chapter VII examined the right to regulate under the status quo of IIAs, with particular regard to exceptions clauses, channelling the discussion under two main rubrics. First, it canvassed exceptions inserted in or affecting individual standards of treatment. Commencing with the contingent standards, the ana-

1007 See Chapter V, Essential security interests, economic crises and economic security. 1008 Ibid. 1009 Cf. UNCTAD (2009a), op cit., p. 17-18. 1010 E.g. Article 19(1)(d) Japan-Peru BIT or Article 99(1)(c) Japan-Philipinnes EPA. On self-judging language, see Chapter VIII, ‘The State considers’ – Self-Judging clauses.

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lysis considered, inter alia, the REIO clause and its significance for regional economic integration organisations and for the European Union, in particular. In the same context, it discussed the topic of MFN extension to investorstate dispute settlement provisions and, an important element in the discourse on the right to regulate, the ‘in like circumstances’ proviso. Moving beyond the contingent standards to absolute investor protections, the fair and equitable treatment, the minimum standard and full protection and security were found to be, in the main, free of exceptions, inter alia on account of an inherent balancing test and the fact that they reflect customary law standards. Consequently discussing exceptions to expropriation, the chapter highlighted an exception that declassifies the (indirectly) confiscatory nature of a state measure and considered the suitability of drafting an exception inspired by Article 1 Protocol One ECHR. Exceptions to free capital transfers were examined next, including an especially noteworthy REIO clause born out of the BIT Judgments of the CJEU and the need to comply with EU law. The focus turned next to exceptions to performance requirements and provisions on compensation for losses. In a second step, general regulatory clauses applicable to the entire treaty were surveyed, with a special emphasis on general exceptions modelled after Article XX GATT. The latter subject permissible derogations from treaty protections to the test of a chapeau or equivalent phrasing, requiring, inter alia, that the measures taken be not arbitrarily or unjustifiably discriminatory. Ultimately, the chapter scrutinised the interplay between, on the one hand, the chapeau and, on the other hand, specific standards of treatment and regulatory interests and concluded that, to the possible exclusion of the contingent standards, such restrictions do not seriously impede application of this kind of general exceptions.

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VIII. The nexus requirement, self-judging clauses and the standard of review of exceptions

Chapter VIII dwells on seminal aspects of the formulation of exceptions clauses and concomitant standards of arbitral review. It begins by focusing on two structural components of the right to regulate1011: the nexus requirement and the drafting of self-judging clauses. Taken together, these elements determine the risk allocation between host states and investors in relation to the exception1012. The examination of the appropriate standard of review of self-judging clauses is undertaken during the discussion on this type of clause, while a final section assesses the review of clauses comprising nexuses unsupported by a self-executing clause. A. The nexus requirement The necessary nexus or link between state regulation and its policy aim constitutes a salient aspect of the right to regulate, in that it determines whether a given measure falls within the scope of an exception1013. The nexus requirement comes with a ‘variety of linguistic formulations’1014, of which the most frequently-encountered one requires that the means adopted be ‘necessary’ to achieve the public objective pursued1015. The present section explores the diversity of formulations, with particular regard to the ‘necessary for’ requirement and its interpretation. The textual possibilities for drafting the nexus requirement come in various flavours and guises not only in different treaties but also within one and the same agreement. A pertinent illustration is offered by the 2005 IndiaSingapore Comprehensive Economic Cooperation Agreement (CECA). Article 6.11 (General Exceptions) of that agreement, states that, subject to the requirements of a chapeau, nothing in the investment chapter shall be con-

1011 1012 1013 1014 1015

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Burke-White, W. W. and Staden, A. von (2008), op cit., p. 329. Burke-White, W. W. and Staden, A. von (2008), op cit., p. 329, 370. See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 330-331. Ibid., p. 342. Ibid., p. 342.

A. The nexus requirement

strued to prevent a party from adopting or enforcing measures ‘necessary to’ protect public morals, human, animal or plant life or health, secure compliance with laws or regulations not inconsistent with the provisions of the investment chapter, or to maintain public order; measures ‘imposed for’ the protection of national treasures of artistic, historic or archaeological value or ‘relating to’ the conservation of exhaustible natural resources. The subsequent provision (Article 6.12), which contains that treaty’s Security Exceptions, uses further variations of the nexus formulation in combination with self-judging language1016 (‘information, the disclosure of which [a Party] considers contrary to its essential security interests’, ‘action which it considers necessary for the protection of its essential security interests […] relating to […]’, etc.) and an example of a particularly loose nexus requirement, namely concerning action taken ‘in pursuance of’ a party’s obligations under the UN Charter. As revealed by the foregoing examples, the nexus requirement may be looser or stricter. The looser it is, the greater the state’s regulatory freedom is and, conversely, the stricter it is, the narrower the state’s discretion is1017. A loose nexus requirement is typically to be found in exceptions for cultural and linguistic diversity in French BIT practice: the French Model BIT’s exception concerning measures ‘designed to preserve and promote cultural and linguistic diversity’1018 aptly portrays this. India’s 2003 Model BIT offers another instance of a loose nexus requirement with its ‘action for’ the protection of the state’s essential security interests and ‘in circumstances of extreme emergency’1019. Comparably, the Colombian Model BIT incorporates exceptions for host state ‘measures intended to preserve public order’, etc.1020, while investment treaties concluded by China and Singapore occasionally make provision for measures ‘directed to’ the protection of the

1016 On self-judging language, see below, ‘The State considers’ – Self-Judging clauses. 1017 Compare Burke-White, W. W. and Staden, A. von (2008), op cit., p. 348, who talk in similar terms of a narrow or broad reading of the ‘neccesary for’ nexus. 1018 Article 1(5) French Model BIT, cited in Chapter IX, France and ‘the framework of measures designed to preserve and promote cultural and linguistic diversity’), emphasis added. 1019 Article 12(2) Indian Model BIT (2003) (emphasis added). For some similar provisions in Indian BITs, see note 444. 1020 Article II(3) Colombian Model BIT (emphasis added).

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parties’ essential security interests, public health or the prevention of diseases and pests in animals or plants1021. The provision for action ‘necessary for’ a specific policy objective is on the strict end of the nexus scale (at least in the absence of self-judging language)1022. Although the ‘necessary for’ or ‘necessary to’ are the two most commonly-employed formulations, there are several other ways in which this requirement may be present. The German Model BIT provides for ‘[m]easures that have to be taken for’ the protection of public security and order1023, while BLEU BITs use the formula ‘[i]f reasons of public purpose, security or national interest require a derogation’ from the provision on nonexpropriation1024. The Austria-India BIT refers to ‘necessary action in abnormal circumstances’ for the protection of the state’s essential security interests1025. One notes that the nexus in this provision is fairly restrictive, in that it not only calls for measures to be necessary for the protection of the state’s essential security interests but it cumulatively requires the presence of ‘abnormal circumstances’. Another strict nexus requirement in some Chinese BITs makes reference to permissible discriminatory treatment ‘in case it is indispensable1026/really necessary1027 for the reason of’ the listed public purposes, and BITs concluded by Morocco sometimes subject the guarantee of the full protection and security standard to ‘strictly necessary measures to maintain the public order’1028.

1021 E.g. respective Article 11 of the China-Singapore BIT (1985), China-Sri Lanka BIT (1986), Singapore-Cambodia BIT (1996), Singapore-Czech Republic BIT (1995), Singapore-Vietnam BIT (1992), Singapore-Peru BIT (2003). 1022 See especially below, The standard of review in the absence of a self-judging clause. 1023 Article 3(2) German Model BIT (2009) (emphasis added). Contrast Protocol, point 2, to the 1959 BIT between Germany and Pakistan (‘Measures taken for reasons of public security and order, public health or morality’, emphasis added). 1024 Article 4(2) BLEU-China BIT (2005), Article 7(2) BLEU-Ethiopia BIT, Article 7(2) BLEU-Libya BIT, Article 7(2) BLEU-Panama BIT, Article 4(2) BLEU-Estonia BIT, Article 4(2) BLEU-Azerbaijan BIT. Emphasis added. Also: Article 7(2) BLEU-Serbia BIT; see also Article 7 BLEU Model BIT (2002). 1025 Article 12(2) Austria-India BIT (emphasis added). 1026 Protocol, para. 2, China-Korea BIT (1992). Emphasis added. 1027 Protocol, para 3, Japan-China BIT (1988). Emphasis added. 1028 Emphasis added. See Article 2(2) Morocco-Pakistan BIT (2001), Article II(2) Morocco-Indonesia BIT (1997), Article 2(2) Morocco-Jordan BIT (1998), Article 2(2) Morocco-Chad BIT (1997), Article 2(2) Morocco-China BIT (1995), Article 2(2) Greece-Morocco BIT (1994).

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One crucial question that arises at this stage concerns the meaning of ‘necessary for’ and its equivalent formulations. Comprising an open-textured term1029 subject to value-laden interpretations, the ‘necessary’ nexus may exist in different frameworks. Some of the Argentine crisis tribunals, in interpreting this term, conflated the treaty-based exception with the necessity defence in customary international law1030, owing to a deceptively simple linguistic analogy between the ‘necessary’ measures stipulated in Article XI US-Argentina BIT and the customary international law defence of necessity, as crystallised in Article 25 ILC Articles1031. In other words, some of these tribunals were led them to confound the nexus requirement in Article XI US-Argentina BIT with the substance of another provision, that of Article 25 ILC Articles1032, although the latter ‘does not offer a guide to interpretation of the terms used in Article XI. The most that can be said is that certain words or expressions are the same or similar. […] Article 25 cannot therefore be assumed to “define necessity and the conditions for its operation” for the purpose of interpreting Article XI’1033. The reasoning of these tribunals will be documented in more detail in Chapter X1034. The imported or read-into-the-treaty plea of necessity under customary international law calls probably for the highest nexus requirement1035. If the tribunals needed an external reference in order to interpret the ‘necessary for’ nexus requirement, they could have had recourse instead to the jurisprudence of the European Court of Human Rights or, as did the Continental Casualty Tribunal, to WTO law1036, systems that have developed their own interpretative canons. Human rights and WTO law have situated the term ‘necessary’ in a continuum between, respectively, ‘indispensable’ and ‘use-

1029 See McLachlan, C. (2005), The Principle of Systemic Integration and Article 31(3) (c) of the Vienna Convention, ICLQ 54, p. 302. 1030 See Chapter X, Necessity and the criteria for its successful invocation; Chapter V, General observations on essential security interests. See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 322, 343. 1031 See CMS Annulment, op cit., para. 129. 1032 E.g. see El Paso Award, op cit., paras 555, 616-617. 1033 Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Decision on annulment, 29 June 2010 (hereinafter Sempra Annulment), paras 198-200. 1034 Chapter X, Necessity. 1035 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 343. 1036 Continental Casualty Award, op cit., para. 192; see also paras 193-195. See also Chapter VII, Relevance of GATT/WTO jurisprudence.

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ful’1037, and ‘indispensable’ and ‘making a contribution to’1038. The latter interpretation has also given rise to the approach described as of the ‘least restrictive alternative’1039, whereby the measures are considered necessary so long as ‘no alternative measure consistent with the General Agreement, or less inconsistent with it’ exists that the state may be reasonably expected to employ1040. The approach of the ECtHR is described below1041. The tribunals are, of course, under no obligation to turn to either legal system and the decision one way or another depends on the individual views of the arbitrators and, as previously mentioned, the persuasiveness of the arguments presented by counsel1042. Indeed, it may be questioned to what extent it is appropriate to turn to these other systems, due to their different function and variations in the drafting of the relevant provisions1043. It is apparent, however, that the paucity or absence of interpretative guidance in the IIA as to which alternative reading is to be followed should not be taken as an indication that the treaty favours particularly recourse to customary law1044. One further key question that the discussion on, in particular, the ‘necessary for’ nexus needs to address is whether the measure’s necessity is assessed in a subjective manner by the state adopting it or whether it constitutes an objective precondition for the exception’s successful invocation, determined by the adjudicating tribunal1045. In other words, we are here in the terrain of the debate around the self-judging nature of exceptions and their

1037 This is the case of the ECtHR. See Burke-White, W. W. and Staden, A. von (2008), op cit., p. 345-346, citing Handyside v. the United Kingdom, a 1976 case. 1038 WTO Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R and WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, 5, para. 161 specifically addressing interpretation of ‘necessary’ in the context of Article XX GATT; see also paras 160, 162-164. 1039 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 346-347. 1040 Thailand-Restrictions on Importation of and Internal Taxes on Cigarettes, GATT Panel Report, para. 75, as cited in Burke-White, W. W. and Staden, A. von (2008), op cit., p. 347. 1041 Below, The standard of review in the absence of a self-judging clause. 1042 See Chapter VII, Relevance of GATT/WTO jurisprudence. 1043 See also Chapter VII, Exception to expropriation standard modelled on the ECHR and Relevance of GATT/WTO urisprudence. 1044 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 348. See also Sempra Annulment, op cit., paras 197, 200. See further Chapter X, Necessity. 1045 The term ‘objective precondition’ is borrowed from UNCTAD (2009a), op cit., p. 92.

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consequent standard of review. This topic is examined in the analyses that ensue. B. ‘The State considers’ – Self-Judging clauses 1. General A particular formulation of the nexus requirement is that of the so-called ‘self-judging’ or ‘self-executing’ exception, a construct that preserves for states the maximum amount of flexibility in determining whether an exception is applicable1046. The discourse that follows is set out in two parts: the first part reflects on self-judging clauses, their drafting and function and the second part examines how these clauses have been interpreted, first by the ICJ and then by some of the recent Argentine crisis tribunals. Termed ‘the Achilles’ heel of international law’1047, perceived in some quarters as flying in the face of investment protection1048, a self-judging clause authorises the state to bear the exclusive judgment of the presence or absence of circumstances prescribed in an exception that permit derogation from its international obligations1049. In the words of a recent tribunal, the distinction between a clause deemed to be self-judging and another clause devoid of such character, rests on whether ‘the State adopting the measures in question is the sole arbiter of the scope and application of that rule, or whether the invocation of necessity, emergency or other essential security interests is subject to some form of judicial review’1050. In fact, as will be seen later, the state is subject to a residual level of arbitral review, a ‘deter-

1046 UNCTAD (2009a), op cit., p. 91. Cf. below, The standard of review in the absence of a self-judging clause. 1047 Schill, S. and Briese, R. (2009), op cit., p. 64, paraphrasing Schloemann and Ohlhoff as cited in ft. 6. 1048 For some opinions on the difficult issues of the self-judging nature of exceptions in international investment law, see e.g. Kurtz, J. (2010), Adjudging the Exceptional at International Investment Law: Security, Public Order and Financial Crisis, ICLQ 59, p. 20 and 30-31; Burke-White, W. W. and Staden, A. von (2008), op cit., p. 370-386; Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 417-426. 1049 UNCTAD (2009a), op cit., p. 91; see further OECD (2007), op cit., p. 94 and Schill, S. and Briese, R. (2009), op cit., p. 67-68; also Sempra Award, op cit., para. 366 (for the respondent’s comments). 1050 CMS Award, op cit., para. 366.

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mination of good faith’1051, even in the presence of a self-judging clause1052. Self-judging clauses are typically worded so as to include the phrase ‘if [the state] considers’ or formulations having an equivalent effect1053. They are more eminently present in essential security interests clauses1054 (since it is evidently in this area that states wish to retain the amplest margin of regulatory discretion), particularly in recent North American treaty practice1055. The Canadian and the US Model BITs1056, the NAFTA1057, but also the ECT1058, the Draft MAI 1059 and the OECD Codes of Liberalisation1060, include self-judging exceptions for the protection of the state’s essential security interests. So, Article 18 US Model BIT (2012) on Essential Security states that nothing in the agreement shall be construed to require a party to furnish or provide access to information whose disclosure ‘it determines to be contrary to its essential security interests’ or to prevent a party ‘from applying measures that it considers necessary’ to fulfill its obligations relating to international peace or security, or to protect its essential security interests1061. Some investment treaties, while enshrining security interests in self-judging language, do so in a limited fashion by means of a qualified model, the

1051 Sempra Award, op cit., para. 366, Enron Award, op cit., para. 324, LG&E Decision on Liability, op cit., para. 208. 1052 See below, The standard of review of self-judging clauses. 1053 Schill, S. and Briese, R. (2009), op cit., p. 69-70. 1054 See Chapter IX, Essential security interests. See also Schill, S. and Briese, R. (2009), op cit., p. 63. 1055 For some examples of self-judging essential security interests exceptions in North American IIAs, see Article XIV(1) US-Azerbaijan BIT (2000), Article 14(1) USBahrain BIT (1999), Article XIV(1) US-El Salvador BIT (1999) (not entered into force), Article XIV(1) US-Mozambique BIT (1998), Article 22.2 US-Colombia FTA (2006), Article 21.2 US-Oman FTA (2006), Article 18 US-Uruguay BIT (2005), Article 22.2 US-Peru TPA (2006), Article IX(5) Canada-Czech Republic BIT (2009), Article 10(4) Canada-Jordan BIT (2009), Article XVII(6) CanadaLatvia BIT (2009), Article 10(4) Canada-Peru BIT (2006) (suspended, see note 779), Article XVII(6) Canada-Romania BIT (2009), Article IX(5) Canada-Slovakia BIT (2010), Article 33(4) Canada-China BIT (2012). 1056 Respectively Articles 18(4) and Article 18 (both discussed below). 1057 Article 2102 NAFTA. 1058 Article 24(3) ECT. 1059 Section VI, General Exceptions, para. 2 Draft MAI. 1060 Article 3 OECD Codes of Liberalisation, op cit. 1061 Emphasis added.

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closed-list approach1062, resulting in what may be termed a qualified or limited self-judging clause. For instance, the 2009 Canada-Jordan BIT provides that nothing in the agreement shall be construed to prevent a party from taking actions ‘that it considers necessary for the protection of its essential security interests (i) relating to the traffic in arms, ammunition and implements of war [etc.] (ii) taken in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons [etc.]’.1063 Although this formulation allows the state to take measures that it regards necessary for the protection of its national security interests, the closed-list or qualified model tightens the scope of what constitutes an essential security interest and therefore what is covered by the clause’s self-judging nature1064. This narrowing of the exception’s scope does not by itself affect its characterisation as self-judging or otherwise, however, in practice, the finite list approach results in a hybrid exception containing both a self-executing part and a non-self-executing part1065. As a result, in the event of a dispute, even though the host state is free to determine which measures are necessary for the protection of its essential security interests immune from full arbitral review1066, the issue of whether the security interest at hand relates to one of the permissible categories falls squarely under arbitral jurisdiction1067. Such a provision then in all but name robs the exception of its self-judging nature1068. A rarer form of self-judging clause is found in Article 22.2 of the US-Peru Trade Promotion Agreement (TPA). Prima facie, the provision is no different than a typical essential security interests exception couched in self-judg-

1062 See Chapter IX, Essential security interests. 1063 Article 10(4)(b) Canada-Jordan BIT (emphasis added). For other examples, see Article 18(4)(b) Canadian Model BIT (2012), Article 2102(1)(b) NAFTA, Article IX(5)(b) Canada-Czech Republic BIT (2009), Article 10(4)(b) Canada-Peru BIT (2006) (suspended, see note 779), Article XVII(6)(b) Canada-Romania BIT (2009), Article IX(5)(b) Canada-Slovakia BIT (2010), Article 2202 Canada-Colombia FTA (2008). See further Section VI, General exceptions, para. 2. Draft MAI, Article 15(1)(a) Japan-Vietnam BIT, Article 19(1)(d) Japan-Peru BIT. 1064 See Chapter IX, Essential security interests. 1065 Cf. Muchlinski, P. (2009a), op cit., p. 59-60. 1066 See below, The standard of review of self-judging clauses. 1067 See also Muchlinski, P. (2009a), op cit., p. 59-60. 1068 Contrast UNCTAD (2009a), op cit., p. 89.

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ing language; it is in fact the same essential security exception that is found in the US Model BIT. However, what makes this provision different is the addition of a footnote, which posits: ‘For greater certainty, if a Party invokes Article 22.2 in an arbitral proceeding initiated under Chapter Ten (Investment) or Chapter Twenty-One (Dispute Settlement), the tribunal or panel hearing the matter shall find that the exception applies.’1069

By pre-deciding on the application of the exception, this clause effectively renders use of the security exception non-arbitrable. Viewed from this angle, it resembles the provisions of the India-Singapore CECA and the India-Korea Comprehensive Economic Partnership Agreement (CEPA), both of which explicitly provide for the non-justiciability of security exceptions1070. The phrasing does not appear intended to rule out the possibility of a residual good faith review. Following this overview of self-judging clauses, it is now important to turn to their interpretation in international jurisprudence. One of the early interpretations regarding the existence of a self-judging clause, took place in the 1986 Nicaragua case1071, where the ICJ, faced with the non-selfjudging ‘essential security interests’ exception in the 1956 FCN Treaty between Nicaragua and the United States1072, held that it had jurisdiction to decide whether the adopted measures fell within the scope of the exception. This, the Court reiterated, ‘is also clear a contrario from the fact that the text of [the exception] does not employ the wording which was already to be found in Article XXI of the General Agreement on Tariffs and Trade. This provision of GATT, contemplating exceptions to the normal implementation of the General Agreement, stipulates that the agreement is not to be construed to prevent any contracting party from taking any action which it “considers necessary for the protection of its essential security interests” […]. The 1956

1069 Ft. 2 to Article 22.2 US-Peru TPA, emphasis added. 1070 Article 6.12 (4) India-Singapore CECA and Article 10.18 (3) and Annex 10-C India-Korea CEPA. 1071 Military and Paramilitary Activities In and Against Nicaragua, op cit. 1072 Article XXI (1)(d) FCN Treaty between Nicaragua and the United States provides that the treaty ‘shall not preclude the application of measures […] necessary to fulfill the obligations of a Party for the maintenance or restoration of international peace and security, or necessary to protect its essential security interests’.

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Treaty, on the contrary, speaks simply of “necessary” measures, not of those considered by a party to be such.’1073 More recently, self-judging clauses acquired notoriety with some of the Argentine crisis awards, where tribunals had to determine whether the essential security interests exception in the US-Argentina BIT (1991) was drafted in a way so as to exclude full arbitral control1074. Article XI of the US-Argentina BIT does not contain the phrase ‘which the state considers’ or an equivalent formulation1075. Argentina maintained that this clause was intended to be self-judging, on grounds of an alleged permanent shift in the US position with respect to essential security clauses in 1992 to the effect that such clauses are self-judging1076. Although the US-Argentina BIT was concluded on the basis of the 1987 US Model BIT, and therefore predated this purported shift, the newer interpretation, according to Argentina, was meant to have retroactive effect1077. The change in US practice is reflected in treaties concluded after the ICJ’s Nicaragua Judgment, namely, as cited by the claimants during the arbitrations, in the 1992 US-Russia BIT (not into force to this date), the 1999 US-Bahrain BIT and the 1992 US Model BIT1078. However, in contrast with the security exception in the US-Argentina BIT, these later treaties either contain language that explicitly indicates the self-judging nature of the provision1079 or incorporate this in a proto-

1073 Military and Paramilitary Activities In and Against Nicaragua, op cit., para. 222. This finding of the Court has been followed in the Gabčíkovo-Nagymaros Project case, op cit., para. 51 and in Oil Platforms, op cit., para. 43. 1074 See below. 1075 That article provides: ‘This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.’. 1076 LG&E Decision on Liability, op cit., paras 208-209; see also Enron Award, op cit., paras 324, 326, Sempra Award, op cit., paras 366, 368, Continental Casualty Award, op cit., para. 186. On relevant US practice, see further Burke-White, W. W. and Staden, A. von (2008), op cit., p. 381 et seq. 1077 See LG&E Decision on Liability, op cit., para. 209, citing the Slaughter Witness Statement. 1078 LG&E Decision on Liability, op cit., paras 211, 213; CMS Award, op cit., paras 339, 368; Enron Award, op cit., para. 327; Sempra Award, op cit., para. 369. See further Burke-White, W. W. and Staden, A. von (2008), op cit., p. 382 et seq. 1079 This is the case of Article 14(1) US-Bahrain BIT (1999).

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col1080, or indicate US understanding of the exception’s nature as self-judging in the Department of State’s letter of submittal1081. It is little wonder that the tribunals generally took issue with Argentina’s contention around the self-executing character of the exception under interpretation. Focusing on the self-judging clause’s permission to unilaterally determine the legitimacy of state measures1082 and its ‘[t]ruly exceptional and extraordinary’ nature1083, the tribunals reasoned that, where the parties intend to endow a clause with self-judging character, they must do so expressly1084. As did the ICJ before them in the Nicaragua case, the tribunals drew a line between measures ‘which [the state] considers necessary’ for the protection of its essential security interests and measures ‘necessary’ simpliciter1085. One tribunal observed further that the treaty provisions need to be interpreted in accordance with the meaning assigned to them by the parties at the time of signature, unless a subsequent modification has been agreed upon1086; since the US-Argentina BIT predated the US policy shift regarding the self-judging nature of its essential security interests exception, the provision could not be deemed to be self-judging1087. In sum, the drafting and interpretation of self-judging clauses occupies an important part in the right to regulate discourse, since these clauses allow

1080 This appears to be the case of the US-Russia BIT, on which see CMS Award, op cit., para. 370. 1081 E.g. US-Albania BIT (Article XIV(1) and Letter of Submittal of August 3, 1995, Comment under Article XIV), US-Bolivia BIT (1998) (Article XIV(1) and Letter of Submittal of April 24, 2000, Comment under Article XIV), US-Georgia BIT (1994) (Article XIV(1) and Letter of Submittal of June 22, 1995, Comment under Article XIV), US-Mongolia BIT (1994) (Article X(1) and Letter of Submittal of June 16, 1995, Comment under Article X). 1082 CMS Award, op cit., para. 370. 1083 Enron Award, op cit., para. 335; Sempra Award, op cit., para. 379. 1084 CMS Award, op cit., para. 370, Enron Award, op cit., para. 335. Sempra Award, op cit., para. 379. This view also finds support in the literature, e.g. see Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 417 et seq. and Schill, S. and Briese, R. (2009), op cit, p. 69; see contra: Burke-White, W. W. and Staden, A. von (2008), op cit., p. 381-386; see also Sloane, R. D. (2012), op cit., p. 500. 1085 Schill, S. and Briese, R. (2009), op cit, p. 73. 1086 LG&E Decision on Liability, op cit., para. 213. See also International Law Commission (1967), YBILC 1966, Vol. II. NY: UN, p. 221, para. 14; UNCTAD (2011c), op cit., p. 3, with citations, but contrast ibid., p. 7 (‘some unilateral documents or statements may provide guidance to arbitrators as supplementary means of treaty interpretation under VCLT Article 32’). 1087 LG&E Decision on Liability, op cit., para. 213.

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the state to determine the circumstances under which it may resort to an exception, typically its essential security interests exception. However, even self-judging clauses do not completely oust arbitral review; and this is the topic that will be examined next. 2. The standard of review of self-judging clauses Self-judging clauses have been interpreted as constraining but not altogether removing the possibility of judicial control: although full arbitral review is precluded by the very wording of the clause, a residual ‘good faith’ control is still required1088. Excepting treaties that bar recourse to arbitration with respect to measures taken pursuant to a specific exception1089 or those that, as the aforementioned US-Peru TPA1090, direct the tribunal to find in favour of the exception, the requirement for this good faith review subsists by virtue of general international law: the obligation emanates from the pacta sunt servanda principle, as codified in the Vienna Convention on the Law of Treaties, to the effect that ‘[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith’1091. A good faith review has been said to encompass an assessment of whether there has been an ‘honest and fair dealing’ on the part of the state and whether there is a ‘rational basis’ for the invocation of the treaty exception1092. Where the state has acted dishonestly in invoking the exception, such as when it is motivated by economic or political reasons, or where applicability of the exception finds no rational basis, such as in the event of a state claiming an essential security interests situation to protect against an alien landing, the

1088 See e.g. LG&E Decision on Liability, op cit., para. 214; also implicitly in: Enron Award, op cit., para. 339 (in conjunction with para. 324), Sempra Award, op cit., para. 388 (in conjunction with para. 366). Outside the context of investment law, see, e.g. Djibouti v. France, op cit., paras 135, 145. For a theoretical underpinning in legal scholarship, see Burke-White, W. W. and Staden, A. von (2008), op cit., p. 376 et seq.; Schill, S. and Briese, R. (2009), op cit., p. 66, 96 et seq., 120 et seq.; Newcombe, A. and Paradell, L. (2009), op cit., p. 494; UNCTAD (2009a), op cit., p. 39-40. 1089 E.g. see Article 1138 NAFTA. 1090 Article 22.2 US-Peru TPA (see above, General). 1091 Article 26 VCLT. Emphasis added. 1092 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 379.

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good faith requirement may remain unsatisfied1093. While the lack of a rational basis for invoking the exception may be relatively easy to discern, state dishonesty relating to internal motives of action will be harder to establish. An example where a treaty violation may be argued for failing the good faith test on this ground would be where a state invokes a threat to its essential security interests in dispute settlement while denying its existence in its domestic assessment1094. The substance of the good faith review has also been dealt with in an obiter dictum by the LG&E Tribunal. In an interesting counterfactual, the tribunal noted that were it ‘to conclude that the provision is self-judging, Argentina’s determination would be subject to a good faith review anyway, which does not significantly differ from the substantive analysis presented here.’1095 This is a somewhat uncomfortable statement, in that it effectively equates a non-self-judging clause – and the full judicial review that goes with it – with a self-judging clause – and the good faith review –, thereby eliminating both the distinction between self-judging and non-self-judging exceptions and the need for it. Nevertheless, without going so far as to actually concur with the LG&E Tribunal, it is reasonable to contend that the good faith review narrows considerably the distinction between self-judging and non-self-judging clauses1096. C. The standard of review in the absence of a self-judging clause In the absence of a self-judging clause, there is full arbitral review; the tribunal assesses whether there has been a situation involving the regulatory interests covered by the exception and whether the measure adopted satisfies the nexus requirement1097. Full arbitral review, however, does not mean that the tribunal will supplant the state’s evaluation of the situation with its own, or, in other words, that the treaty’s silence on the appropriate deference to

1093 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 379-380. 1094 For the example, although not expressly linking it to state dishonesty, see UNCTAD (2009a), op cit., p. 40. 1095 LG&E Decision on Liability, op cit., para. 214. 1096 See UNCTAD (2009a), op cit., p. 129. 1097 Cf. Burke-White, W. W. and Staden, A. von (2008), op cit., p. 368-371; UNCTAD (2009a), op cit., p. 41.

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be offered a state for action taken pursuant to an exception should compel the tribunal to second-guess the state’s decision1098. Some authors have therefore argued in favour of importing the European Court of Human Rights’ margin of appreciation doctrine1099 when reviewing state conduct pursuant to indeterminate ‘highly policy-relevant’ treaty terms1100. The margin of appreciation doctrine, as developed by the Strasbourg Court, recognises a space for manoeuvre in the implementation of states’ obligations under the European Convention on Human Rights1101. Transposed to investment disputes, the doctrine would imply that, in the absence of a self-judging clause, the adjudicating tribunal will allow states some flexibility or ‘deference’ in invoking the exception1102. Its scope would be contingent upon the situation giving rise to the invocation of the exception and the treaty term under scrutiny: the possibility of objective assessment would narrow the margin and, conversely, the lack of objective criteria would broaden it1103. Accordingly, whereas the review of more technical and easily verifiable standards, such as the most-favoured-nation treatment, would involve a narrow margin, decisions affecting public policy on the basis of subjective notions, such as the public order, essential security interests and public morality, would require wider boundaries, as less apt to receive a full substantive review1104. It is not unusual that public policy decisions that a tribunal rules upon partake of a quasi-constitutional nature1105, raising the acute question of

1098 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 369 et seq.; see further UNCTAD (2009a), op cit., p. 41. 1099 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 370 et seq., 403-406. Contrast Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 441-449. Cf. Muchlinski, P. (2009a), op cit., p. 74-75. 1100 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 371. 1101 See the page of the Council of Europe: http://www.coe.int/t/dghl/cooperation/lisbonnetwork/themis/echr/paper2_en.asp; Arai-Takahashi, Y. (2001), op cit.; Yourow, H. C. (1996), The Margin of Appreciation Doctrine in the Dynamics of European Human Rights Jurisprudence, Dordrecht: Martinus Nijhoff Publishers; Burke-White, W. W. and Staden, A. von (2008), op cit., p. 368 et seq. and passim; Staden, A. von (2011), Democratic Legitimacy of Judicial Review beyond the State: Normative Subsidiarity and Judicial Standards of Review http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1969442, p. 18-2. 1102 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 372. 1103 Ibid., p. 375. 1104 Ibid., p. 371-372. 1105 Ibid., p. 372.

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where lies the dividing line ‘between judging a State’s policies and judging the consequences of such policies’ for investors1106. It became clear, for example, with the Argentine crisis disputes that what effectively has been under review is Argentina’s response to a major economic crisis, leading arbitral control to the heart of governmental policy1107. Such situations may nurture high sensitivities; and it has been argued that it doubtful whether the subjective interests of a state that perceives its national security to be at stake are susceptible of objective evaluation or ‘whether any tribunal acting judicially can override the assertion of a State that a dispute affects its security or vital interests’1108. Finally, a particular case arises where the nexus requirement is drafted in a loose manner. Measures taken for or measures directed to the protection of host state essential security interests and comparable constructions indicate that all actions taken with the purpose of protecting the country’s essential security interests fall within the exception’s scope1109. In that mere intent suffices to establish applicability of the exception, such provisions resemble self-judging clauses1110 and it is debatable whether, like the latter, they remove the possibility of full arbitral review1111. It may be argued that, where the nexus requirement is fashioned so loosely, an objective assessment – and so, full review – is called for. However, the distinction between the two options appears of minute practical consequence, since it is quixotic to expect a tribunal to reason that the adopted measure ‘has no relation whatsoever’ to the purpose claimed to be pursued by the state1112. D. Concluding remarks Chapter VIII has examined two structural elements of exceptions clauses and the level of their review. Commencing with the nexus requirement, it noted the range of available formulations stipulating looser or stricter links

1106 Stern, B. (2009), Are Some Disputes Too Political to Be Arbitrable? ICSID Rev 24 (1), p. 80. 1107 See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 372. 1108 Lauterpacht, H. (1933), The Function of Law in the International Community, reprinted 1966, Hamden, Connecticut: Archon Books, p. 188. 1109 Cf. Burke-White, W. W. and Staden, A. von (2008), op cit., p. 342. 1110 UNCTAD (2009a), op cit., p. 95. 1111 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 371. 1112 UNCTAD (2009a), op cit., p. 95.

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between the adopted state measure and the public interest pursued. Particular attention was given to the ‘necessary for’ nexus and its interpretation in recent arbitrations, adverting in particular to the danger of confounding it with the necessity defence under customary international law. The second structural element explored concerned the drafting of self-judging clauses, which effectively permits the host state to judge whether it may successfully invoke an exception. The chapter reviewed open and closed approaches to the formulation of these clauses and emphasised that their exceptional nature requires their self-executing character to be explicitly stated as such. Turning to the appropriate level of arbitral review, the chapter argued that self-judging clauses do not entirely remove the possibility of arbitral control but relegate this to a residual good faith review. In the absence of self-judging language, there is full arbitral review. However, this does not signal that state policymaking is to be second-guessed by arbitral tribunals and an appropriate degree of deference is to be wished for, especially where state measures partake of a quasi-constitutional nature.

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IX. The right to regulate by subject

General exceptions modelled after Article XX GATT are not the only possible method of incorporating a right to regulate in a general regulatory clause. Exceptions for national security, taxation and cultural diversity offer examples of clauses that generally discard the chapeau and provide an outright guarantee that nothing in the agreement shall prevent the parties from adopting the exceptional measures in question. On the other hand, general exceptions with a chapeau or equivalent formulations are well-suited to other regulatory interests that do not assume discriminatory treatment, such as protection of the environment. By reason of their significance as self-standing regulatory interests, the ensuing sections consider in turn the formulation of exceptions for essential security interests, tax matters and cultural diversity. A. Essential security interests Although far from being universal – exceptions for essential security interests have been conspicuously absent from some European treaties, such as those based on the Dutch, French and older UK Model BITs1113 – they are included in most comprehensive trade or economic partnership agreements with investment chapters, as well as in probably most bilateral investment treaties concluded by the United States, Germany, BLEU, Mexico and India1114. The paragraphs that follow discuss first national security, offering some general remarks on the formulation and scope of relevant exceptions and evaluating the open and closed approaches to their drafting. In a second step, the focus shifts to non-disclosure of information for the protection of national security, exceptions for international peace and security and finally circumstances of extreme emergency. Exceptions for national security afford host states the highest degree of regulatory discretion: in contrast with other exceptions, covering interests

1113 Cf. Article 7(1) 2008 UK Model BIT and third exchange of letters, France-Bangladesh BIT (1985), on proposal of the Government of Bangladesh. 1114 UNCTAD (2009a), op cit., p. 3, incl. ft. 3; OECD (2007), op cit., p. 98.

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possibly deemed less central to a state’s survival1115, essential security interests clauses are typically self-standing, applicable to the entire investment treaty and, at least in newer treaties, regularly couched in self-judging language1116. Only rarely do they take the form of general exceptions modelled after Article XX GATT, to wit, they are generally not subject to the requirements of a chapeau1117. However, exceptions for national security may also be drafted so as to apply to specific standards of treatment1118 or to dispute settlement provisions1119, and some treaties entirely exclude from their scope measures adopted ‘for reasons of national security or public order’1120, thereby rendering immune from arbitration any associated measure. Exceptions for essential security interests tend to be drafted in an open manner unaccompanied by qualifications. For instance, AUSFTA’s essential security exception, simply states that nothing in the treaty shall be construed ‘to preclude a Party from applying measures that it considers necessary for […] the protection of its own essential security interests’1121. Other treaties, while still adopting an open approach, contain specific examples of security interests covered in the form of a non-finite, viz. non-exhaustive, list. The ECT provides in its essential security interests clause that the treaty’s provisions1122 shall not be construed to prevent a party from taking measures it considers necessary ‘for the protection of its essential security interests including those (i) relating to the supply of Energy Materials and

1115 1116 1117 1118

1119

1120 1121 1122

See Chapter V, Essential security interests. On this, see Chapter VIII, ‘The State considers’ – Self-Judging clauses. See Chapter VII, The chapeau and national security exceptions. E.g. Article 3(2) German Model BIT (2009) (‘public security and order’, see Chapter V, General observations on essential security interests), Article 7(1) UK Model BIT 2008 (cf. the 2005 UK Model Treaty); some treaties concluded by BLEU, such as in Article 4(2) BLEU-Albania BIT, Article 4(2) BLEU-Algeria BIT, Article 7(2) BLEU-Madagascar BIT and Article 4(2) BLEU-China BIT (2005). E.g. Article 1138 NAFTA; also Annex 1138.2 NAFTA. This is also typical of some BITs concluded by Mexico, e.g. Article 12 of the Schedule attached to the Netherlands-Mexico BIT (1998). For another formulation, see Article 20 Germany-Mexico BIT, Article 19 Austria-Mexico BIT (1998), Article 19 BLEU-Mexico BIT and Article 23 Iceland-Mexico BIT (2005). See Article 2(5)(b) 1996 BIT between Mexico and Argentina. Article 22.2 AUSFTA (2004). Other than Articles 12, 13 and 29 (see Article 24(3) ECT).

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Products to a military establishment; or (ii) taken in time of war, armed conflict or other emergency in international relations’1123. In contrast with the open approach of the above IIAs, there also exists another category of investment treaties that adopt a finite, closed-list approach that delimits the scope of the security exception by enumerating the particular types of interests covered. The NAFTA national security exception, as the identically-worded provision in Canada’s Model BIT1124 and the now defunct Draft MAI1125, establishes that nothing in the agreement1126 shall be construed to preclude a party ‘from taking any actions that it considers necessary for the protection of its essential security interests (i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment, (ii) taken in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices’ 1127.

The finite list approach of the NAFTA imposes interpretative restrictions that result in a twofold narrowing of the provision. First, the enumeration of the specific regulatory situations in which recourse may be had to the exception delimits the latter’s applicability1128. By confining itself to traffic in arms, wars or other emergencies in international relations and policies or agreements on the non-proliferation of nuclear weapons, this type of exception is in principle not applicable to economic crises, to the protection of a state’s strategically important industries1129 or to domestic emergencies. The particular provision for the exception to be invoked ‘in time of war’ entails

1123 Article 24(3)(a) ECT (emphasis added). See also Article 76(a) (Security) Agreement between New Zealand and Singapore on a Closer Economic Partnership. 1124 See Article 18(4)(b) Canadian Model BIT (2012). This is not the only time that the Canadian Model BIT adopts a closed-list approach, e.g it also does so with regard to the definition of investment. See Chapter II, Limiting the scope of investment protection. 1125 Section VI, General exceptions, para. 2. 1126 Subject to Articles 607 (Energy – National Security Measures) and 1018 (Government Procurement Exceptions). 1127 Article 2102(1)(b) NAFTA (emphasis added). 1128 UNCTAD (2009a), op cit., p. 85. 1129 Ibid., p. 85.

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that the threat to national security must have materialised in concreto, while the state is not at liberty to determine how severe the external threat must be before taking action1130. Secondly, as the clauses discussed here are endowed with self-judging nature, the closed-list impacts the scope of the exception’s ‘self-judgment’1131. Another type of exceptions involving national security concerns are the one regarding the disclosure of information that may be contrary to a state’s essential security interests. For instance, the US Model BIT states that nothing in the agreement shall be construed to require the parties to furnish or allow access to information whose disclosure they deem to be contrary to their essential security interests1132. These exceptions are generally selfjudging1133, they often precede the generic national security exception in a treaty and are not subject to a closed list1134. It is debatable, however, whether a finite approach in the essential security interests exception does not also impact the exception concerning disclosure of information; although stricto sensu the closed-list relates only to the general exception for the state’s security interests, there is a risk that arbitral tribunals may apply the interpretative tools offered in one clause delimiting the scope of national security to the meaning of the same concept in another clause, a probability increased by the immediate proximity of the two provisions1135. A different formulation bearing upon security concerns is the exception for the maintenance or restoration of international peace and security. These exceptions are almost exclusively present in BITs where one party is either the United States or Canada1136. As mentioned earlier, there are two core strands of such provisions in IIAs, reflecting the respective treaty practice of these states, with the key differences between them lying in whether ref-

1130 1131 1132 1133

Ibid., p. 89. See Chapter VIII, ‘The State considers’ – Self-Judging clauses (General). Article 18(1) US Model BIT (2012). E.g. Article 18(1) US Model BIT (2012), Article 18(4)(a) Canadian Model BIT (2012), Article 2102(1)(a) NAFTA, Article 18(1) US-Rwanda BIT, Article 18(1) US-Uruguay BIT, Article 33(5)(a) Canada-China BIT (2012), Article XVII(6) Canada-Latvia BIT (2009), XVII(6) Canada-Romania BIT. 1134 E.g. see Article 18 US Model BIT (2012), Article 18(4) Canadian Model BIT (2012), Article 2102 NAFTA. 1135 E.g. see Article 18(4) Canadian Model BIT (2012) and Article 2102 NAFTA. 1136 But see also Section VI, General Exceptions, para. 2(c) Draft MAI, Article [26] (iii) Norwegian Draft Model BIT, as well as Article 3(4)(a) 2011 Austrian Model BIT (but contrast that treaty’s 2002 predecessor).

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erence is made to the UN Charter1137 and whether self-judging language is employed1138. As this topic has already been discussed, it will not be further dwelled upon here. The last security exception documented in the present section is circumstances of extreme emergency in Indian BIT practice1139, generally constituting part of a general essential security interests exception1140. Article 12(2) of India’s Model BIT provides: ‘Nothing in this Agreement precludes the host Contracting Party from taking action for the protection of its essential security interests or in circumstances of extreme emergency in accordance with its laws normally and reasonably applied on a non discriminatory basis.’

One notes the chapeau-like requirement that actions be taken on a non-discriminatory basis, a wording which appears to extend to both the essential security interests exception and the exception for circumstances of extreme emergency1141. The additional requirement for ‘normal’ and ‘reasonable’ application of host state laws1142 has been described as offering investors a guarantee that the state shall respect the ‘basic rule of law’, being able to offer an explanation for restrictive measures taken pursuant to the exception, and that these measures shall be independent of the investor’s nationality1143. By way of a closing reflection, the exception for essential security interests constitutes a quintessential safeguard of the state’s right to regulate, since it provides policy space in a field that affects the very existence of a

1137 See Chapter V, International peace and security. 1138 This is the case of the US Model BIT (Article 18(2)). Contrast Article 18(4)(c) Canadian Model BIT (2012). 1139 See also, Chapter V, Circumstances of extreme emergency. 1140 For examples, see Chapter V, Circumstances of extreme emergency. But contrast Article 12(2) India-Kazakhstan BIT and the particular formulation of Article 12 of the BIT between the Czech Republic and India: ‘The provisions of this Agreement shall not in any way limit the right of either Contracting Party in cases of extreme emergency to take action in accordance with its laws applied in good faith, on a non-discriminatory basis, and only to the extent and duration necessary for the protection of its essential security interests, or for the prevention of diseases and pests in animals or plants’ (emphasis added). 1141 Contrast Article 15 Slovenia-India BIT (2011). 1142 On the use of ‘reasonable’ in international law, see Salmon, J. J. A. (1981), op cit. and the dedicated volume Corten, O. (1997), op cit. 1143 UNCTAD (2009a), op cit., p. 83.

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state1144. And although it is unclear that essential security interests exceptions will become relevant to investor-state disputes as often as exceptions covering more prosaic public interests – although doubts are legitimately entertained in the aftermath of the Argentine crisis disputes –, treatymakers must pay special attention to the formulation of this type of clause, this exception par excellence. B. Taxation Taxation matters belong to a nationally sensitive pocket of public policy, that of a state’s fiscal policy, and so they are typically excluded from IIA coverage1145. The majority of investment treaties either contain a general exception leaving taxation matters outside their scope and so shielding tax measures from obligations arising out of the IIA1146, or they introduce a specific exception to the national and most-favoured-nation treatment1147, in order to ensure that there is no obligation to extend tax privileges to the investors of the other party. Specific tax provisions also exist with regard to expropriation1148. In removing taxation from the scope, or part of the scope, of an investment agreement, these exceptions allow the competent authorities to formulate tax policy without compromising their fiscal sovereignty, addressing taxation in relevant treaties and granting privileges in return for concessions1149. The analysis that follows will proceed in two steps: first, it will explore broad exceptions for tax matters and, second, it will highlight taxation-related exceptions to the contingent standards.

1144 See Chapter V, General observations on essential security interests. 1145 See Wälde, T. W. and Kolo, A. (2008), Coverage of Taxation under Modern Investment Treaties, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds), The Oxford Handbook of International Investment Law, NY: OUP, p. 305 et seq. and especially p. 324-341; UNCTAD (2007b), op cit., p. 43, 81-83; UNCTAD (2000b), Taxation, UNCTAD/ITE/IIT/16, UNCTAD IIA Series, NY & Geneva: UN, p. 33 et seq. 1146 UNCTAD (2000b), op cit., p. 33; see also see UNCTAD (2007b), op cit., p. 81. 1147 See Wälde, T. W. and Kolo, A. (2008), op cit., p. 325-328, UNCTAD (2000b), op cit., p. 33-34. For some examples, see UNCTAD (2007b), op cit., p. 43, table 16. 1148 See below. 1149 UNCTAD (2007b), op cit., p. 81; UNCTAD (2000b), op cit., p. 36. See further Wälde, T. W. and Kolo, A. (2008), op cit., p. 326.

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The 1995 BIT between New Zealand and Hong Kong offers an example of a treaty that presents an unqualified exclusion of taxation matters from its scope. Article 8(2) of that treaty establishes: ‘The provisions of this Agreement shall not apply to matters of taxation in the area of either Contracting Party. Such matters shall be governed by the domestic laws of each Contracting Party and the terms of any agreement relating to taxation concluded between the Contracting Parties.’1150

Most treaties that contain a general exclusion of taxation matters from their protective coverage tend to adopt a ‘qualified model’1151, generally removing such matters from the treaty’s scope yet allowing for specific situations in which the measures fall within its ambit1152. Taxation provisions in the NAFTA aptly illustrate this approach. Article 2103 NAFTA on Taxation provides1153: ‘1. Except as set out in this Article, nothing in this Agreement shall apply to taxation measures. 2. Nothing in this Agreement shall affect the rights and obligations of any Party under any tax convention. In the event of any inconsistency between this Agreement and any such convention, that convention shall prevail to the extent of the inconsistency. […] 4. Subject to paragraph 2: […] (b) Articles 1102 and 1103 (Investment – National Treatment and Most-Favored Nation Treatment) […] shall apply to all taxation measures, other than those on income, capital gains or on the taxable capital of corporations, taxes on estates, inheritances, gifts and generation-skipping transfers and those taxes listed in paragraph 1 of Annex 2103.4, except that nothing in those Articles shall apply (c) [to] any most-favored-nation obligation with respect to an advantage accorded by a Party pursuant to a tax convention, (d) to a non-conforming provision of any existing taxation measure, (e) to the continuation or prompt renewal of a non-conforming provision of any existing taxation measure,

1150 See also respective Article 5(2) of the New Zealand-China BIT (1988), ArgentinaNew Zealand BIT (1999, not entered into force), Singapore-Peru BIT (2003, not entered into force) and China-Singapore BIT (1985). 1151 See UNCTAD (2000b), op cit., p. 37 et seq. 1152 See UNCTAD (2007b), op cit., p. 81 et seq. . 1153 Article 2103 NAFTA belongs to that treaty’s Exceptions’ chapter (Chapter Twenty-One). The omitted parts contain provisions that do not directly relate to investment.

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(f) to an amendment to a non-conforming provision of any existing taxation measure to the extent that the amendment does not decrease its conformity, at the time of the amendment, with any of those Articles, (g) to any new taxation measure aimed at ensuring the equitable and effective imposition or collection of taxes and that does not arbitrarily discriminate between persons, goods or services of the Parties or arbitrarily nullify or impair benefits accorded under those Articles, in the sense of Annex 2004, or (h) to the measures listed in paragraph 2 of Annex 2103.4. 5. Subject to paragraph 2 and without prejudice to the rights and obligations of the Parties under paragraph 3 [application of Article 301 (Market Access – National Treatment), Article 314 (Market Access – Export Taxes) and Article 604 (Energy Export Taxes) to taxation measures], Article 1106(3), (4) and (5) (Investment – Performance Requirements) shall apply to taxation measures. 6. Article 1110 (Expropriation and Compensation) shall apply to taxation measures except that no investor may invoke that Article as the basis for a claim under Article 1116 (Claim by an Investor of a Party on its Own Behalf) or 1117 (Claim by an Investor of a Party on Behalf of an Enterprise), where it has been determined pursuant to this paragraph that the measure is not an expropriation. The investor shall refer the issue of whether the measure is not an expropriation for a determination to the appropriate competent authorities set out in Annex 2103.6 […]. If the competent authorities do not agree to consider the issue or, having agreed to consider it, fail to agree that the measure is not an expropriation within a period of six months of such referral, the investor may submit its claim to arbitration under Article 1120 (Submission of a Claim to Arbitration).’

The ECT contains an even longer and more complex provision on taxation1154. The US and, in particular, the Canadian Model BITs include in their turn analogous provisions1155. All these treaties draft specific provisions with regard to property protection1156 in an apparent attempt to disallow expropriation through tax measures1157. Simultaneously, they provide for a declassification of the ‘confiscatory’ nature of a measure under certain circumstances. For instance, pursuant to Canada’s Model BIT, a joint determination by the contracting parties’ tax authorities that a measure does not 1154 Article 21 ECT. 1155 Article 21 US Model BIT (2012) and Article 14 Canadian Model BIT (2012). 1156 Article 21(5) ECT, Article 21(2) US Model BIT (2012), Article 14(5) Canadian Model BIT (2012). See also Section VIII, para. 2 Draft MAI. 1157 UNCTAD (2000b), op cit., p. 42. – A lengthy footnote to the Draft MAI’s provision on taxation demonstrates further the preoccupation with drawing a line between taxation and expropriation (See Section VIII, para. 2, ft. 2 Draft MAI). On taxation matters and expropriation, see also Wälde, T. W. and Kolo, A. (2008), op cit., p. 341 et seq.

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amount to an expropriation overrules investor claims of a treaty breach1158. In the same vein, a claim to arbitration under the provisions of the US Model BIT alleging that a taxation measure constitutes expropriation may not be submitted to a tribunal, unless ‘within 180 days after the date of such referral, the competent tax authorities of both Parties fail to agree that the taxation measure is not an expropriation.’1159 In removing a posteriori the possibility of a claim, these clauses resemble the binding interpretations by the parties after a claim has been brought before an arbitral tribunal, encountered in North American treaty practice1160. A particular formulation of the tax matters’ exception, a variation of the above qualified model, exists in recent bilateral investment treaties concluded by Japan1161. The provisions in question enumerate other treaty articles that apply to taxation measures, and, even without inspecting these, it becomes obvious that the exceptions are narrower than the ones of the hereto discussed model. Article 22 (Taxation) Japan-Laos BIT (2008) offers an example of this particular type of qualified exception. It provides: ‘1. Nothing in this Agreement shall apply to taxation measures except as expressly provided for in paragraphs 2, 3 and 4 of this Article. 2. Article 1, paragraph 1 of Article 5, Articles 6, 9, 12, 25 and 27 shall apply to taxation measures. 3. Articles 16 and 17 shall apply to disputes under paragraph 2 above. 4. Article 23 shall apply to taxation measures regarding matters set out in paragraph 2 of this Article.’

Other treaties, especially those that follow the European post-establishment model1162, contain taxation exceptions that relate notably to the contingent standards. These exceptions stipulate the non-extension of various tax privileges flowing from international agreements, sometimes with a specific

1158 1159 1160 1161

Article 14(6) Canadian Model BIT (2012). Article 21(2)(b) US Model BIT. See Chapter II, Clarifications and interpretative statements. E.g. Article 22 Japan-Cambodia BIT (2007), Article 19 Japan-Korea BIT (2002), Article 19 Japan-Vietnam BIT (2003) and Article 22 Japan-Laos BIT (2008) (cited in accompanying text). 1162 See Chapter II, Limiting the scope of investment protection.

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mention of double taxation treaties (DTTs)1163, whose purpose is to apportion taxing rights between the contracting parties with a view to avoiding double taxation1164. Domestic tax legislation is also often excluded from the scope of the standards1165. To take an illustration, Article 7(1) of the UK Model BIT introduces an exception to the national and most-favoured-nation treatment regarding privileges deriving from ‘any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation’1166. Some treaties provide entire carve-outs for all tax matters; Article 5 French Model BIT on the national

1163 E.g. see Article 3(4) German Model BIT (2009), Article 4(b) Finnish Model BIT, Article 4 Netherlands-Jamaica BIT, Article 4 France-Argentina BIT, Article 4 France-Kazakhstan BIT, Article 3(4) Switzerland-South Africa BIT. See also Article 14(2) Canadian Model BIT (2012) and Article 4(4) BLEU Model BIT (2002). 1164 UNCTAD (2000b), op cit., p. 13-14. 1165 E.g. Article 3(5) German Model BIT, Article 3(4) Sweden-Bolivia BIT, Article 3(3) Sweden-Argentina BIT, Article 3(3)(b) Greece-South Africa BIT. This is also the case in BITs concluded by Austria, Spain and the UK, e.g. see Articles 4(3) (b) of the BITs between Spain and Gabon, Guatemala, Libya, Syria, Uzbekistan, Article III(3)(b) Spain-Mexico BIT; Article 3(4)(c) Austrian Model BIT, respective Article 3(4)(b) of the Austria-United Arab Emirates BIT, Austria-Georgia BIT, and the Austria-Cambodia BIT (2004, not entered into force). For examples in UK treaties, see note 1166. 1166 For examples of tax exceptions in UK treaties, see e.g. respective Article 7 of the BITs between the UK and Albania, Antigua and Barbuda, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bolivia, Bosnia and Herzegovina, Burundi, Cameroon, Congo, Côte d'Ivoire, Croatia, Cuba, Czech Republic, Ecuador, Egypt, El Salvador, Estonia, Georgia, Grenada, Guyana, Haiti, Honduras, Hong Kong, Kazakhstan, Kyrgyzstan, Laos, Latvia, Lithuania, Malta, Mauritius, Moldova, Mongolia, Nepal, Nicaragua, Nigeria, Pakistan, Paraguay, Poland, Saint Lucia, Senegal, Slovenia, South Africa, Sri Lanka, Swaziland, Tanzania, Tonga, Tunisia, Turkey, Turkmenistan, Uganda, Uruguay, Venezuela and respective Articles 5 of the BITs between the UK and Hungary, Jamaica, Mexico and the United Arab Emirates, Articles 4 UK-Morocco BIT, UK-Peru BIT, UKUkraine BIT, respective Article 6 UK-Dominica and UK-Ghana BITs and Article 9 UK-Trinidad and Tobago BIT; respective Articles 3(3) of the BITs between the UK and Chile, Jordan, Lebanon, Oman, Panama, Romania, Yemen; Article 3(4) UK-China BIT, Article 4(3) UK-India BIT, Article IV(3) UK-Philippines BIT, Article IV(2) UK-Colombia BIT, Article 4(1) UK-Bulgaria BIT (1995).

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treatment and the most-favoured-nation treatment, an exemplar of this trend, establishes with succinct laconism that: ‘The provisions of this Article do not apply to tax matters.’1167

A more qualified approach is followed by the Dutch Model BIT, which guarantees national and most-favoured-nation treatment with respect to ‘taxes, fees, charges and […] fiscal deductions and exemptions’ but specifies that special fiscal advantages are not to be taken into account when accorded under a DTT, by virtue of the party’s participation in a customs union, economic union or similar arrangement or on the basis of reciprocity with a third state.1168 The provision for the state’s participation in a customs or other economic union complements – or forms part of – that treaty’s REIO exception1169 as a belts-and-braces provision with regard to taxation. The foregoing discussion has sought to demonstrate that taxation belongs to a sphere of public policy where states generally reserve their right to regulate. This becomes clear so much with broad exceptions covering tax matters, including notably those that shield a state’s fiscal policy from the full scope of investment protections, as with exceptions that target the contingent standards. Tax exceptions in IIAs are so engrained in the legal conscience of the system’s participants that they often do not form part of the right to regulate debate1170. C. Cultural diversity 1. Introduction In February 1998, Lionel Jospin, then France’s Prime Minister, stated that, in order for the MAI to be concluded, it should not interfere with any of France’s essential interests and he went on to make the ensuing statement with regard to the ‘cultural exception’:

1167 ‘Les dispositions de cet Article ne s’appliquent pas aux questions fiscales’, Article 5 French Model BIT. For other examples in French treaties, see Article 4 of the BITs between France and Albania, Armenia, Azerbaijan, Cambodia, Chile, Guatemala (§ 3), Romania and South Africa. 1168 Article 4 Dutch Model BIT. 1169 Article 3(3) Dutch Model BIT. 1170 E.g. see Burke-White, W. W. and Staden, A. von (2008), op cit.

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‘Je tiens en particulier à confirmer qu'il n’y aura pas d’accord si le principe de l’exception culturelle devait être remis en cause. J’attache une priorité absolue à la préservation de notre identité culturelle ainsi qu’à celle de l’Europe. Un accord de ce type, dont l’objectif essentiel est de consolider les multiples accords bilatéraux de protection des investissements déjà signés entre pays de l’OCDE, ne doit notamment en aucun cas contraindre notre capacité à soutenir et à développer la création artistique et les industries culturelles et audiovisuelles.’1171

There are several things one can say in retrospect on the reasons that precipitated the MAI’s demise and appraisals of the project have abounded1172. This part of the story is well-known but it is worth telling once more. The French Government had commissioned a report on the MAI, which became known as the Lalumière Report after one of its authors1173. Following completion of the Report, critical of the MAI on a number of grounds1174, and at the behest of civil society and political pressure, the French Government decided to wash its hands off an agreement that became more unpopular by the day. The cultural exception had not been adopted, and its non-adoption became tantamount to multiple loops of a tangled Gor-

1171 Communiqué de M. Lionel Jospin sur la position de la France concernant le projet d'accord multilatéral sur l'investissement (AMI), op cit. 1172 For example, Canner, S. J. (1998), The Multilateral Agreement on Investment, Cornell Int’l L J 31; Henderson, D. (1999), The MAI Affair: a Story and its Lessons, London: Royal Institute of International Affairs; Juillard, P. (1998), MAI: A European View, Cornell Int’l L J 31; Muchlinski, P. (2000), The Rise and Fall of the Multilateral Agreement on Investment: Where Now? International Lawyer 34; Geiger, R. (1999), Eléments clés d’un cadre international pour l’investissement, in SFDI (ed.), Un accord multilatéral sur l’investissement : D’un forum de négociation à l’autre? Paris: A. Pedone; Juillard, P. (1999), op cit.; see also generally Société Française pour le Droit International, (ed.), (1999), Un accord multilatéral sur l’investissement : D’un forum de négociation à l’autre? Paris: A. Pedone; Picciotto, S. (1998), Linkages in International Investment Regulation: the Antinomies of the Draft Multilateral Agreement on Investment, U Pa J Int’l L 19; Scholz, W. (1998), International Regulation of Foreign Direct Investment, Cornell Int’l L J 31; Stumberg, R. (1998), Sovereignty by Subtraction: The Multilateral Agreement on Investment, Cornell Int’l L J 31; UNCTAD (1999c), Lessons from the MAI. UNCTAD/ITE/IIT/MISC 22, UNCTAD IIA Series, NY & Geneva: UN: UN; UNCTAD (1999d), World Investment Report 1999, NY & Geneva: UN, p. 128 et seq. 1173 Lalumière, C. and Landau, J.-P. (1998), Rapport sur l’Accord multilatéral sur l’investissement (AMI), Rapport intérimaire, in Assemblée Nationale, Rapport d’information (rapport preliminaire) sur les relations économiques entre l’Union européenne et les Etats-Unis, N. 1150, 23 October 1998, Annex 2. 1174 Lalumière, C. and Landau, J.-P. (1998), op cit., p. 2 et seq.

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dian knot, the adverse reaction to which was the floundering of the negotiations: the French Government deemed the MAI incompatible with its wish to protect French culture1175 and pulled out of the negotiations on 14 October 19981176, effectively putting an end to the agreement. Languishing in relative obscurity, often concealed behind other ostensible points of discord, cultural policy and the exceptions safeguarding its autonomy are easy to underestimate. Policy space for culture, as expressed in the cultural exception (exception culturelle) and the exceptions for cultural specificity (spécificité culturelle) and, in more recently espoused phraseology, cultural diversity (diversité culturelle)1177, has been a cornerstone of investment negotiations, gone largely unnoticed due to the lack of a major supporter: the United States has staunchly opposed exceptions relating to culture1178, so much in the MAI context, as in earlier negotiations in the WTO1179 and in relation to the 2005 UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions1180.

1175 Dolzer, R. and Schreuer, C. (2008), op cit., p. 26. 1176 See Assemblée Nationale – 2e séance du 14 octobre 1998, Compte rendu intégral, p. 6578-6579, Négociations sur l’AMI http://www.assemblee-nationale.fr/11/cri/ html/19990021.asp#06578; see also Geiger, R. (2008), The Multifaceted Nature of International Investment Law, in Sauvant, K. P. and Chiswick-Patterson, M. (eds), Appeals Mechanism in International Investment Disputes, NY: OUP, p. 24. 1177 Richieri Hanania, L. (2009), Diversité culturelle et droit international du commerce, Paris: La Documentation française, p. 22-23; see also: Buchsbaum, J. (2006), “The Exception Culturelle Is Dead” Long Live Cultural Diversity: French Cinema and the New Resistance, Framework 47 (1); Atkinson, D. (2001), De « l’exception culturelle » à la « diversité culturelle » : Les relations internationales au cœur d’une bataille planétaire, AFRI Vol. II. 1178 On the US opposing the cultural exception, see generally, e.g. Richieri Hanania, L. (2009), op cit., p. 106, also Hubin, C. (1998), La culture dans l’Accord Multilatéral sur l’Investissement (AMI) : Avancée en terrain miné, RDAI 8, p. 957-958; Atkinson, D. (2001), op cit., p. 673. 1179 See UNCTAD (1999d), op cit., p. 145, ft. 28. 1180 The US is not a signatory to this treaty, see http://portal.unesco.org/la/convention.asp?KO=31038&language=E&order=alpha#1. See futher Ruiz Fabri, H. (2007a), Culture Seized by Globalization: Can International Law Be of Any Help? Reflections on Possible Future Legal Implications of the UNESCO Convention

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The discourse that follows examines the right to regulate with respect to this often neglected regulatory interest, in order to better evaluate its significance. The detailed excursus is warranted by this very neglect, which means that cultural diversity is sometimes excluded from the negotiating table with potentially detrimental ramifications (e.g. MAI), but it is also justified because of its discussion in new EU negotiations. The review begins by sketching an outline of what an exception for cultural diversity actually entails, before exploring the conceptual framework in which the investment law exception situates itself. Consequently, the analysis turns to the exception within investment law proper. The particular case of the MAI negotiations, the French and European Union policies vis-à-vis cultural diversity are surveyed. The discussion closes with the substantially different Canadian approach. 2. The exception for cultural diversity But first of all what is an exception for cultural diversity? Despite the sloganlike utilisation of the term which may seem to deprive it of legal meaning1181, cultural diversity has been interpreted to presuppose cultural plur-

on the Protection and Promotion of the Diversity of Cultural Expressions, in Reinisch, A. and Kriebaum, U. (eds), The Law of International Relations: Liber Amicorum Hanspeter Neuhold, Utrecht: Eleven International, who, citing M. Koskenniemi, describes the Convention as ‘the expression of a ‘counter-hegemonic strategy’’, ibid. p. 325. On the UNESCO Convention in general, see Richieri Hanania, L. (2009), ibid., p. 266 et seq.; UNESCO (2007), Ten Keys to the Convention on the Protection and Promotion of the Diversity of Cultural Expression & 30 Frequently Asked Questions Concerning the Convention on the Protection and Promotion of the Diversity of Cultural Expressions, CLT/CEI/DCE/2007/PI/ 32; Ruiz Fabri, H. (2007a), ibid.; Ruiz Fabri, H. (2007b), Jeux dans la fragmentation : la Convention sur la promotion et la protection de la diversité des expressions culturelles, RGDIP 1; Graber, C. B. (2006),The New UNESCO Convention on Cultural Diversity: A Counterbalance to the WTO? JIEL 9 (3); Obuljen, N. and Smiers, N. (eds) (2006), UNESCO’s Convention on the Protection and Promotion of the Diversity of Cultural Expresions – Making it Work, Zagreb: Institute for International Relations. 1181 Richieri Hanania, L. (2009), op cit., p. 246, also p. 252; Regourd, S. (2004), Avantpropos, in Regourd, S. (ed.), De l’exception à la diversité culturelle, La documentation française, p. 5; see further Ruiz Fabri, H. (2007b), op cit., p. 48; Graber, C. B. (2006), op cit., p. 554.

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alism, an opening to other cultures and cultural exchanges1182. It is defined in the Council of Europe Declaration on cultural diversity as ‘the co-existence and exchange of culturally different practices and […] the provision and consumption of culturally different services and products’1183; and in the UNESCO Convention as ‘the manifold ways in which the cultures of groups and societies find expression’, manifest, inter alia, ‘through diverse modes of artistic creation, production, dissemination, distribution and enjoyment’1184. Respect for cultural diversity has been described as ‘an essential condition of human society’1185. Cultural diversity recognises the hybrid nature of cultural products and services, on grounds of their dual economic and cultural nature, and concedes the importance of state intervention in order to guarantee a diversified cultural offer (offre culturelle diversifiée)1186. The necessity of its protection1187 finds basis on the imbalance of cultural exchanges in a globalised world, triggered in part by what is perceived as US hegemony in the field and a fear of cultural domination1188.

1182 Richieri Hanania, L. (2009), op cit., p. 246. 1183 Article 1 (1.1) Declaration on cultural diversity adopted on 7 December 2000 by the Council of Europe https://wcd.coe.int/ViewDoc.jsp?id=389843. 1184 Article 4 (1) UNESCO Convention. 1185 Preamble to the Declaration on cultural diversity, Council of Europe, op cit. 1186 Richieri Hanania, L. (2009), op cit., p. 23, 29 et seq.; see also p. 434. This hybrid nature is not recognised by the US, which, in contrast with Europe, relies on economic, at the exclusion of cultural, aspects. See Richieri Hanania, L. (2009), ibid., p. 94; Rigaud, J. (2004), Europe / Etats-Unis : deux conceptions différentes de la culture, in Regourd, S. (ed.), De l'exception à la diversité culturelle, Paris: La Documentation française, p. 25-26. 1187 Lilian Richieri Hanania draws a line between protectionism and legitimate protection, the latter being considered as a duty incumbent upon the state, Richieri Hanania, L. (2009), op cit., p. 61, further citing P. Lamy; see also p. 269 et seq., 274 et seq. 1188 Remarkably, while in 2009 European film sales made up 26.7% of the European film market share, the equivalent percentage for films of US origin in the Union was 67.1%. Provisional data for 2010 reveal a widening of the gap with a 25.3% share of EU films versus 68% of US origin films. By contrast, the percentage of penetration of European Union films in the North American market (US and Canada) in 2009 was a mere 6.8 %. The difference becomes all the more striking when one notes that these percentages concern 1,168 EU feature films vis-à-vis 677 US

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On the ground, cultural diversity refers to quotas, subsidies and tax advantages for broadcasting, films and music1189. A system of quotas guarantees a minimum percentage of access to national or regional works, without excluding or discriminating against products of a particular origin1190. Subsidies vary between countries, generally being lower in states well-established in the market for cultural works, such as in the anglophone world (US, United Kingdom, Australia, but also Canada) and are relatively higher in Western Europe1191. Outside Europe, Canada is the country providing the highest amount of subsidies to the audiovisual industry1192. Tax advantages function to an extent as replacement for the need to directly subsidise1193. Other measures to boost cultural activity include specific requirements imposed on broadcasters, such as obligations addressed to television channels to financially support European cinematographic production1194. Having briefly examined the semantics of the exception for cultural diversity, the discussion now sketches the contours of cultural policy concerns, starting outside the investment law context.

1189 1190 1191 1192 1193 1194

feature films. See European Audiovisual Observatory (2010), Focus 2010: World Film Market Trends – Tendances du marché mondial du film, Marché du Film, p. 14, 19, 43; see also Press Release: European Audiovisual Observatory. 3D drives EU gross box office to record high in 2010 as market share for European films drops, Strasbourg, 9 May 2011 http://www.obs.coe.int/about/oea/pr/mif2011_cinema.html. Data for film sales in Canada for 2010 reveal an even stronger imbalance. While films of Canadian origin occupied a mere 3.1% of Canadian cinema ticket sales, the equivalent percentage for films of US origin in the Canadian market was 92.7%. See Canadian Media Production Association (2011), Profile 2011 – An Economic Report on the Screen-based Production Industry in Canada, Ottawa Toronto Vancouver: CMPA, p. 69, Exhibit 2-88. On the imbalance of cultural exchanges, US hegemony on the market for culture and cultural domination (‘domination culturelle’), see further: Richieri Hanania, L. (2009), op cit., p. 21, 37 et seq. E.g. see generally Richieri Hanania, L. (2009), op cit., p. 67 et seq. Richieri Hanania, L. (2009), op cit., p. 67-68; on quotas see generally ibid. p. 67 et seq. Ibid., p. 77. Ibid., p. 78; on subsidies see generally ibid., p. 77 et seq. Ibid., p. 81. For instance, see below, France and ‘the framework of measures designed to preserve and promote cultural and linguistic diversity’ on French TV service provider contributions to European and French cinematographic works.

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3. Considerations for cultural policy outside the stricto sensu investment context Outside the system of international investment treaties, considerations for cultural policy have been present in the international sphere both in the context of the WTO and in standalone instruments relating wholly or mainly to culture. These other agreements may have an indirect import for investment law, both by explaining the history of the cultural exception, but also, particularly in the case of the standalone instruments, as ‘relevant rules of international law applicable in the relations between the parties’1195 to an investment treaty. The debate around the cultural exception in the WTO predates its discussion in the context of the Multilateral Agreement on Investment. A limited ‘exception’ for culture in the form of GATT Article IV has already permitted internal quotas for cinematographic films1196, while Article III(10) GATT states that its provisions ‘shall not prevent any contracting party from establishing or maintaining internal quantitative regulations relating to exposed cinematograph films and meeting the requirements of Article IV’. However, capacity for public intervention in the cultural sector in the WTO setting remains narrow. Forerunner of the exception for cultural diversity, the cultural exception, had been strongly advocated by, in particular, France and Canada1197, but also the European Union. Already in 1993, during the Uruguay Round, the latter tried to introduce an exception in Article XIV GATS which would shield measures regulating the audiovisual sector from liberalisation obligations in pursuance of policies designed to preserve and promote local cultural identity1198. Those who opposed exceptions for culture advanced arguments, inter alia, around the advantages of liberalism, the futility of public policies aimed at assisting the audiovisual sector and the inevitable imposition of the US film industry with the internet1199. Their comments are the ones that ultimately prevailed, so that in 1994 the chance

1195 Article 31(3)(c) VCLT. 1196 On the limited character of this ‘exception’, see Richieri Hanania, L. (2009), op cit., p. 94-95. 1197 Richieri Hanania, L. (2009), op cit., p. 22. 1198 Richieri Hanania, L. (2009), op cit., p. 109. See further Cahn, S. and Schimmel, D. (1997), The Cultural Exception: Does It Exist in GATT and GATS Frameworks? How Does It Affect Or Is It Affected by the Agreement on TRIPS? Cardozo Arts & Entertainment 15, p. 296-297. 1199 Richieri Hanania, L. (2009), op cit., p. 109-110.

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to include the cultural exception in the trade law system passed by1200. The effect of this was only partially mitigated by the ‘bottom up’ or positive list approach eventually adopted in GATS – according to which the states choose the sectors and the extent to which they liberalise – that provided some consolation to the proponents of the exception by making it possible to keep culture closed1201. Accordingly, neither the EU nor Canada have taken engagements in the audiovisual sector1202. Dissatisfaction with the compromise achieved in the WTO, further fuelled by the cultural polemic that plagued the MAI, led to the search for a solution outside the trade or investment context, in the form of an external instrument whose very purpose would be to protect cultural diversity1203. Enter the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions. The latter, is in fact only one of three relevant international instruments endorsed by intergovernmental organisations1204 – the other two are the Declaration on Cultural Diversity adopted on 7 December 2000 by the Council of Europe1205 and the Declaration of Cotonou adopted on 14-15 June 2001 by the Organisation Internationale de la Francophonie (OIF)1206 – but it is possibly the most prominent and talked-about among these. Its particular significance for the investment context consists in, other than the aforementioned potential applicability it may find as a relevant rule of international law, the fact that it may also serve as a negotiating basis for refusing liberalisation of the cultural sector and reserving policy space for culture1207.

1200 Richieri Hanania, L. (2009), op cit., p. 109-110. 1201 Richieri Hanania, L. (2009), op cit., p. 22, 120; Cahn, S. and Schimmel, D. (1997), op cit., p. 298, 304. See also Ruiz Fabri, H. (2007b), op cit., p. 48-49. 1202 Richieri Hanania, L. (2009), op cit., p. 121. 1203 Richieri Hanania, L. (2009), op cit., p. 23; Ruiz Fabri, H. (2007a), op cit., p. 326. 1204 Richieri Hanania, L. (2009), op cit., p. 256. 1205 Available at: https://wcd.coe.int/ViewDoc.jsp?id=389843. 1206 Available at: http://www.francophonie.org/IMG/pdf/Conf_minis_Culture_Cotonou.pdf. 1207 See Richieri Hanania, L. (2009), op cit., p. 435 and, generally, p. 330 et seq.

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4. Cultural exception, exception for cultural policy and the investment law context i. The Multilateral Agreement on Investment and the exception for culture It is now time to turn to the investment law context proper. The notoriety that the cultural exception has acquired in the investment world is probably more than anything due to the battle waged for its inclusion in the MAI under the auspices of the French delegation and with the support of a handful of countries: Canada, Belgium1208, Italy, Greece and Spain1209. Tellingly, the exception had also received endorsement by the European Parliament1210. Despite the vulgarisation of the term ‘cultural exception’– sometimes talked of in its ‘original’ form as the ‘exception culturelle’1211–, in reality the exception advanced during the MAI negotiations was one for cultural and linguistic diversity, an exception to all intents and purposes identical, and unsurprisingly so, to the one found in the French Model BIT1212. Accordingly, it is to France, that this examination will turn.

1208 Belgium has been a proponent, if somewhat less voiciferous, of exceptions for culture also outside the MAI context. 1209 See Richieri Hanania, L. (2009), op cit., p. 106, also Hubin, C. (1998), op cit., p. 957-958 and UNCTAD (1999d), op cit., p. 145, ft. 28, for proponents and retractors of the exception in the MAI context. The opposition front at that time included the US, Japan, New Zealand, but also the UK, the Netherlands, Germany and Denmark. 1210 European Parliament (1998), op cit., Part A. Motion for a Resolution, para. 26 (et seq.). 1211 E.g. in Buchsbaum, J. (2006), op cit.; Baert, T. (2003), The Euro-Mediterranean Agreements, in Sampson, G. P. and Woolcock, S. (eds), Regionalism, Multilateralism, and Economic Integration: The Recent Experience, Tokyo, NY, Paris: UN University Press, p. 116. 1212 The proposed exception read: ‘Nothing in this agreement shall be construed to prevent any Contracting Party to take any measure to regulate investment of foreign companies and the conditions of activity of these companies, in the framework of policies designed to preserve and promote cultural and linguistic diversity.’ On the equivalent provision of the French Model BIT, see below, France and ‘the framework of measures designed to preserve and promote cultural and linguistic diversity’.

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ii. France and ‘the framework of measures designed to preserve and promote cultural and linguistic diversity’ The promotion of cultural and linguistic diversity, under the different names that have been ascribed to it over time, has a remarkable lineage in the French legal and political landscape1213. Even a cursory review of the country’s framework of the audiovisual sector speaks volumes as to the salience of cultural policies and, within this context, cultural diversity. Underpinned by this domestic legal setting, an exception for culture is found in French BITs1214. A brief overview of these policies is apposite, since it is they that have led, even if in part, to the demise of the MAI and to the inclusion of cultural diversity in the EU’s negotiating directives1215. The present section considers the general regulatory landscape of the audiovisual sector in France and then the country’s particular approach to culture in investment treaties. Although regulation regarding quotas for television broadcasting in France had already been in place in the 1970s, with the liberalisation of the sector in the subsequent decade and the Freedom of Communication Act of 30 September 1986, local content requirements acquired formal legal standing1216. Article 27 of that Act, most recently amended in 20091217, contains in its second paragraph a provision to the effect that broadcasting of European cinematographic and audiovisual works must correspond to at least

1213 E.g. Farchy, J. (1999), La fin de l’exception culturelle? Paris: CNRS Editions, p. 172 et seq. 1214 See below. 1215 Information obtained by the author. 1216 Loi n° 86-1067 du 30 septembre 1986 relative à la liberté de communication (Loi Léotard), JORF of 1 October 1986 page 11755, specified by the Décret n° 87-36 du 26 janvier 1987 pris pour l’application des articles 27-I et 70 de la loi n° 86-1067 du 30 septembre 1986 relative à la liberté de communication et fixant pour certains services de télévision le régime de diffusion des oeuvres cinématographiques et audiovisuelles, JORF of 27 January 1987 (later modified by the Décret n° 88-607 du 6 mai 1988). See also page on Les obligations de diffusion des services de radio et de télévision on the website of the French Ministry for Culture and Communication http://www.ddm.gouv.fr/article.php3?id_article=258. 1217 Article 114, Loi n° 2009-879 du 21 juillet 2009 portant réforme de l'hôpital et relative aux patients, à la santé et aux territoires, JORF n°0167 of 22 July 2009 page 12184.

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60% of total broadcasting, particularly in primetime1218, while original French cinematographic and audiovisual works must correspond to at least 40% of broadcasting during the same hours. Article 28 of the same Act, modified most recently in 20111219, contains analogous requirements for French-language songs1220, while Articles 33 and 70 lay down similar provisions for films1221. TV service providers need to contribute each year a minimum percentage – currently 3.2% – of their net annual turnover of the previous year to European cinematographic production, with a minimum percentage – currently 2.5% – contribution of the said income to original French works1222. Further actions are adopted in the framework of the promotion of musical diversity1223. Other initiatives include the co-operation of specifically-designed public agencies, such as the Centre national du cinéma et de l’image animée, operating under the aegis of the French Ministry of

1218 Primetime is set to 20.30-22.30. See Article 7(II) Décret n° 90-66 du 17 janvier 1990 pris pour l’application de la loi n° 86-1067 du 30 septembre 1986 relative à la liberté de communication, as amended by Article 2 Décret n° 2004-1481 du 23 décembre 2004, JORF of 30 December 2004 page 22396. Exceptions apply by virtue of Article 27(2) second sub-paragraph. 1219 Article 142, Loi n° 2011-525 du 17 mai 2011 de simplification et d'amélioration de la qualité du droit, JORF n°0115 of 18 May 2011 page 8537. 1220 Article 28(2 bis), ibid. 1221 Ibid. 1222 Article 3(I) Décret n° 2010-747 du 2 juillet 2010 relatif à la contribution à la production d’oeuvres cinématographiques et audiovisuelles des services de télévision diffusés par voie hertzienne terrestre, JORF of 3 July 2010, texte n° 40 (This decree is to be read in conjunction with its rectificatif, JORF of 10 July 2010, texte n° 61) and Article 6(I) Décret n° 2010-416 du 27 avril 2010 relatif à la contribution cinématographique et audiovisuelle des éditeurs de services de télévision et aux éditeurs de services de radio distribués par les réseaux n’utilisant pas des fréquences assignées par le Conseil supérieur de l’audiovisuel, JORF of 29 April 2010, texte n° 36. For an overview of the French subsidy policy for the audiovisual sector until about 2002, see Cocq, E. and Messerlin, P. (2003), The French Audiovisual Policy: Impact and Compatibility with Trade Negotiations, HWWA Report 233, p. 10-24. 1223 See La promotion de la diversité musicale on the website of the French Ministry for Culture and Communication, Direction générale des médias et des industries culturelles: http://www.ddm.gouv.fr/article.php3?id_article=261.

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Culture and Communication and expressly mandated to promote the diversity of cultural expressions1224. The cultural concerns of the French polity have perforce some resonance with French BIT practice. An exception for cultural and linguistic diversity is recurrent in a large number of especially newer BITs concluded by France1225, in what is generally perceived as the ‘usual’ French approach1226, and it is one of the few and far between exceptions consistently to be found in these treaties1227. The standard text of the exception is encapsulated in Article 1(5) of the French Model BIT, which provides: ‘Nothing in this agreement shall be construed to prevent one of the Contracting Parties from taking any measure to regulate investment by foreign investors and the conditions of activities of these investors, in the framework of measures designed to preserve and promote cultural and linguistic diversity.’1228

The exception for cultural and linguistic diversity in French investment treaties is in certain respects a sui generis exception. First, as becomes readily

1224 Ordonnance n° 2009-901 du 24 juillet 2009 relative à la partie législative du code du cinéma et de l'image animée, JORF n°0170 of 25 July 2009, p. 12443, texte n ° 39. See in particular Annex (Code du cinéma et de l’image animée), L. 111-2, Article 2(a), which provides, inter alia, for ‘la diversité des formes d'expression et de diffusion cinématographique, audiovisuelle et multimédia’. See also http:// www.cnc.fr/web/fr/le-cnc. 1225 E.g. Article 1(6) France-Tajikistan BIT, Article 2(3) France-Mexico BIT, Article 1(6) France-Uganda BIT, Article 1(6) France-Madagascar BIT, Article 1(5) France-Djibouti BIT, Article 1(6) France-Zambia BIT, Article 2(2) France-Bosnia and Herzegovina BIT, Article 1(6) France-Ethiopia BIT, Article 1(5) France-Libya BIT, Article 1(5) France-Senegal BIT (2007). Cf. Article 3(6) France-Turkey BIT and Article 1(5) France-Iran BIT. 1226 See for example the Exposé des motifs accompanying the Bill authorising approval of the 2004 BIT between France and Libya, presented by Michel Barnier in the name of Jean-Pierre Raffarin, in Annexe au procès-verbal de la séance du 15 décembre 2004, N° 123, Sénat, Session ordinaire de 2004-2005, comment on Article 1 of the BIT. 1227 Others are a REIO exception, an exception concerning tax matters and an exception for serious balance-of-payments difficulties, e.g. see Articles 5 and 7 French Model BIT. 1228 The original French version reads: ‘Aucune disposition du présent Accord ne sera interprétée comme empêchant l'une des Parties contractantes de prendre toute disposition visant à régir les investissements réalisés par des investisseurs étrangers et les conditions d'activités desdits investisseurs, dans le cadre de mesures destinées à préserver et à encourager la diversité culturelle et linguistique.’.

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apparent from its wording, the provision conforms to the formulation of unqualified general exceptions: applicable to the entire treaty (‘Nothing in this agreement’), it is not subject to the requirements of a chapeau. Despite its nature of a general exception, it appears to relate more particularly to the non-discrimination standards1229. Most crucially, although not enshrined in self-judging language, the loose nexus requirement ‘designed to’ grants host states a broad margin of flexibility1230, an observation reiterated by the fact that this exception regularly forms part of the treaty’s provision on Definitions1231 or Scope of application of the treaty1232. Although embedding the exception in these articles does not affect its legal nature, it is possible that, where arbitral tribunals are reluctant to give effect to an exception1233, they would have a harder time ignoring an exception thus placed as an overarching provision at the head of a treaty. In conclusion, it becomes quite apparent that both the domestic legal framework and BIT practice have buttressed the French approach to the MAI and the new EUIAs. iii. The European Union and the promotion of cultural diversity If France has been the most vocal advocate of exceptions for culture, its insistence on the express incorporation of the exception in various international fora, including in the MAI, has eclipsed a collective actor that has no less of a stake in the preservation of cultural diversity. Cultural diversity

1229 This is reflected in Article 4 France-China BIT (2007), which exceptionally embeds the exception in its provision on the MFN and NT standards. Cf., outside French treaty practice, Article 131(3)(b) China-Peru FTA. See also Lalumière, C. and Landau, J.-P. (1998), op cit., p. 13 and Chapter VII, Idiosyncratic exceptions to the non-discrimination standards. 1230 See Chapter VIII, The nexus requirement. 1231 E.g. Article 1 French Model BIT (2006), Article 1(5) France-Djibouti BIT (2007), Article 1(5) France-Libya BIT (2004), Article 1(6) France-Madagascar BIT, Article 1(5) France-Senegal BIT (2007), Article 1(6) France-Tajikistan BIT. 1232 E.g. Article 2(2) France-Bosnia and Herzegovina BIT, Article 2(3) France-Mexico BIT. 1233 E.g. see CMS Award, op cit., Sempra Award, op cit. and Enron Award, op cit. See also Chapter X, Necessity and the criteria for its successful invocation.

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holds a particular position in the European Union1234; the latter aims to both protect and promote it. By virtue of primary and secondary EU legislation and in view of public positions that the EU has adopted (the Union’s stance in the WTO setting vis-à-vis culture has already been discussed1235), cultural diversity is elevated to a European level public policy. Cultural diversity is anchored in primary EU law in multitudinous formulations, starting with the very Preamble to the Treaty on European Union. According to that treaty, the Union ‘shall respect its rich cultural and linguistic diversity, and shall ensure that Europe’s cultural heritage is safeguarded and enhanced’1236. The Treaty on the Functioning of the European Union establishes that ‘[t]he Union shall contribute to the flowering of the cultures of the Member States, while respecting their national and regional diversity’1237, and that it ‘shall take cultural aspects into account in its action under other provisions of the Treaties, in particular in order to respect and to promote the diversity of its cultures’1238. The Charter of Fundamental Rights of the European Union provides for the respect of the ‘freedom and pluralism of the media’1239 and enjoins the Union to respect cultural and linguistic diversity1240.

1234 See for example the dedicated volume Craufurd Smith, R. (ed.) (2004), Culture and European Union Law, NY: OUP. Also, selectively, European Commission (2003a), Communication ‘Towards an international instrument on cultural diversity’, COM(2003) 520 final, Brussels, 27.8.2003, p. 3; European Commission (2003b), Communication ‘The future of European Regulatory Audiovisual Policy’, COM(2003) 784 final, Brussels, 15.12.2003, p. 12; European Commission (2007), Communication on a European agenda for culture in a globalizing world, COM (2007) 242 final {SEC(2007) 570}, Brussels, 10.5.2007, passim; European Commission (2010b), Report on the implementation of the European Agenda for Culture, COM(2010)390 final SEC(2010)904, Brussels, 19.7.2010, p. 2-4. 1235 See above, Considerations for cultural policy outside the stricto sensu investment context. 1236 Article 3(3) TEU. 1237 Article 167(1) TFEU. 1238 Article 167(4) TFEU. 1239 Article 11(2) CFREU. 1240 Article 22 CFREU.

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Cultural diversity is also encompassed in secondary EU law. The Audiovisual Media Services Directive1241, like the earlier Television without Frontiers Directive it amended1242, encourages cultural diversity and the promotion of European audiovisual works through quotas and financial contributions1243. MEDIA1244, the EU programme for the support of the European audiovisual sector1245, run by the European Commission1246, provides subsidies to the sector. Its objectives comprise the preservation and enhance1241 Directive 2007/65/EC of the European Parliament and of the Council of 11 December 2007 amending Council Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities, OJ L 332, 18.12.2007 and codified version: Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive), OJ L 095, 15.4.2010 P. 0001 – 0024. On the Audiovisual Media Services Directive, visit the European Commission webpage: http://ec.europa.eu/avpolicy/ reg/history/index_en.htm. 1242 Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by Law, Regulation or Administrative Action in Member States concerning the pursuit of television broadcasting activities (Television without Frontiers), OJ L 298, 17.10.1989; and amending Directives 97/36/EC of the European Parliament and of the Council, OJ L 202, 30.7.1997 and 2007/65/EC of the European Parliament and of the Council, OJ L 332, 18.12.2007. – In its turn, the Television without Frontiers Directive has been described as one of the most important legislative initiatives at the European level for the audiovisual sector: Holmes, J. (2004), European Community Law and the Cultural Aspects of Television, in Craufurd Smith, R. (ed.), Culture and European Union Law, NY: OUP, p. 192. See further the dedicated article by Donaldson, J. D. (1996), “Television Without Frontiers”: The Continuing Tension Between Liberal Free Trade and European Cultural Integrity, Fordham Int’l L J 20 (1). 1243 See Articles 13, 16 and 17 of the Directive. 1244 Abbreviation for ‘Mesures pour encourager le développement de l’industrie audiovisuelle’. See http://europa.eu/legislation_summaries/glossary/audiovisual_fr.htm. 1245 Decision No 1718/2006/EC of the European Parliament and of the Council of 15 November 2006 concerning the implementation of a programme of support for the European audiovisual sector (MEDIA 2007), OJ L 327, 24.11.2006. See also http://ec.europa.eu/culture/media/index_en.htm. 1246 The programme is run by the Directorate-General for Education and Culture. http://ec.europa.eu/dgs/education_culture/index_en.htm. Another programme, Eurimages, offers support to the European cinematographic industry, but, run by the Council of Europe, it is not confined to the EU. See http://www.coe.int/t/dg4/ eurimages/default_en.asp.

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ment of European cultural and linguistic diversity, the improvement of European audiovisual works’ audience reach and strengthening the competitiveness of the European audiovisual sector1247. In accordance with MEDIA, particular support is to be granted, inter alia, to films of interest for the development and enhancement of European cultural and linguistic diversity1248. What should be readily obvious from this brief exposition is that cultural diversity is well-embedded in EU law. And while several of these provisions have existed for years, without, to the author’s knowledge, giving rise to arbitrations even absent specific exceptions, such exceptions are perhaps appropriate, given that cultural policy in the EU may jar with the mostfavoured-nation and the national treatment standards1249. It should therefore not occasion astonishment that with the new discussion on the EU-wide investment chapters, cultural policy is back on the table. As previously cited, the European Parliament has identified cultural diversity as one of the policy areas where it is desirable to insert ‘in all future agreements specific clauses laying down the right of parties to the agreement to regulate’1250; while, in another statement, redolent of Canadian treaty practice, the Parliament listed culture among examples of sensitive sectors which need not be covered by future agreements1251. The earlier quoted negotiating directives of September 2011 and the one of June 2013 equally call for the respect of EU and Member State policies for the promotion and protection of cultural diversity1252. The CETA draft of 7 February 2013 limited mentions of culture to a ‘declaratory’ right to regulate-like provision proposed by the EU, while the newer draft of 31 May 2013 specifies that reference regarding treatment of investments in the cultural sector will be included in the treaty’s Scope ar-

1247 Decision No 1718/2006/EC, op cit., Chapter I, Article 1(2). 1248 See Decision No 1718/2006/EC, op cit., Annex, Chapter I, paras 3.2 and 3.3. 1249 European Parliament (1998), op cit., para. 27; Lalumière, C. and Landau, J.-P. (1998), op cit., p. 13. 1250 European Parliament (2011a), op cit., para. 25, cited in Chapter III, Developments at the collective level. 1251 European Parliament (2011a), op cit., para. 26, cited in Chapter III, Developments at the collective level. 1252 Council (EU) negotiating directives of September 2011, op cit., under the heading Objective, cited in Chapter III, Developments at the collective level. Council (EU) directive for the negotiation on the TTIP of June 2013, op cit., paras 8-9.

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ticle1253. It is very likely that the final agreement will contain provisions to reserve cultural policy space. In closing, it must nonetheless be observed that the concern with cultural policy space is not confined to the EU. In Europe, an example from outside the Union comes in the form of Norway’s ill-fated Draft Model BIT (2007), which contained an especially-drawn provision on culture1254. Comparable exceptions are also sometimes present in treaties concluded outside Europe, such as in the China-Peru FTA1255. Equally outside Europe, Canada will be examined next. iv. The Canadian approach: carving cultural industries out of the scope of the agreement The approach adopted by Canada towards cultural policy1256, as depicted in that country’s Model Agreement and treaty practice, is substantially different to the one discussed so far, since it has the effect of excluding cultural industries from the treaties’ scope1257, rather than inserting a right to regulate in favour of cultural policies1258. Article 18(7) of the Canadian Model BIT establishes that: ‘This Agreement does not apply to a measure adopted or maintained by a Party with respect to a person engaged in a cultural industry.’

1253 Respective Article X.1 Draft CETA Investment Text of 7 February and 31 May, op cit. 1254 Article [27] Norwegian Draft Model BIT (2007) (‘The provisions of this Agreement shall not apply to a Party’s laws and measures specifically designed to preserve and promote linguistic and cultural diversity, cultural and audiovisual policy, as well as rights and obligations of the Parties under international agreements and national laws and measures relating to copyright and related rights.’). 1255 E.g. Article 131(3)(b) China-Peru FTA. 1256 In Canadian terminology, regulatory freedom in the context of cultural policy may equally be called ‘shelf space’. See Carmody, C. (2007), Creating ‘Shelf Space’: NAFTA’s Experience with Cultural Protection and Its Relevance for the WTO, Asian J WTO & Int’l Health L & Pol 2 (2). 1257 Article 18(7) Canadian Model BIT (2012). Canada has been consistent in excluding cultural industries from the investment protections in its BITs. See: UNCTAD (2007b), op cit., ft. 117 (in the text referred to as ft 118). See also Article 33(1) Canada-China BIT (2012), Article 2206 Canada-Colombia FTA, Article XIV.6 Canada-Costa Rica FTA, Article O-06 and Annex O-06 Canada-Chile FTA. 1258 See Chapter II, Limiting the scope of investment protection.

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Persons engaged in a cultural industry within the meaning of that article are natural persons or enterprises1259 engaged in the publication, distribution or sale of books, magazines, periodicals or newspapers, the production, distribution, sale or exhibition of film, video, audio or video music recordings, music scores, radiocommunications intended for direct reception by the general public, radio, television, cable broadcasting, and all satellite programming and broadcast network services1260. With respect to Canada, cultural industries are also exempt from the NAFTA provisions1261, and the country has also lodged a reservation regarding cultural industries to the OECD Code of Liberalisation of Capital Movements1262. The analysis of exceptions for cultural diversity concludes here. This part of the chapter canvassed the semantics of the exception for cultural diversity and, following a brief discussion of cultural policy outside the stricto sensu investment context, it turned to cultural diversity considerations in investment law proper. It addressed the exception for culture in the context of the MAI but, more particularly, it focused on related legal approaches of the exception’s most ardent supporters, France, at the national level, and the EU. This final section considered the qualitatively different model of Canadian treaty practice. D. Concluding remarks Chapter IX examined exceptions drafted with respect to three particular regulatory interests. Commencing with plausibly the most seminal interest, essential security, it discussed the formulation of essential security interests clauses, provisions on the non-disclosure of information relating to a state’s essential security interests, exceptions for international peace and security and circumstances of extreme emergency. The exploration then turned to the

1259 See Article 1 Canadian Model BIT (2012). 1260 Article 18(7) Canadian Model BIT (2012). An equivalent defition is included in Canadian BITs, see for instance Art. VI (3) of the 2009 Canada-Romania BIT. See also Canada reservation to the OECD Code of Liberalisation of Capital Movements, op cit., Annex B, point ii. 1261 Article 2106 NAFTA and Annex 2106 (Cultural industries) in conjunction with Article 2005 Canada-United States FTA. See also Gratton, L.-P. (2004), La clause d’exemption culturelle nord-américaine : un modèle? in Regourd, S. (ed.), De l’exception à la diversité culturelle, Paris: La Documentation française, p. 46-47. 1262 OECD Code of Liberalisation of Capital Movements, op cit., Annex B.

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drafting of exceptions for tax matters, in the form of general and standardspecific regulatory clauses, and found that states generally reserve their right to regulate in respect of this interest. The last part of the chapter was dedicated to exceptions relating to cultural policy. The analysis addressed in particular the significance of exceptions for culture in the French legal framework, Europe’s most vocal advocate of the exception, and the European Union, thus leading the discussion to cultural policy considerations in the future EU international investment law policy. The substantially different Canadian approach was also considered. Chapter IX concludes the examination of exceptions clauses and express regulatory interests in IIAs. The following chapter turns to general international law to examine whether a right to regulate may be vouchsafed beyond investment treaties by virtue of customary law defences.

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X. The right to regulate beyond IIAs in general international law

General international law affords states an amount of regulatory discretion in a complementary or residual fashion with reference to a treaty-assured right to regulate. The complementary or residual function of such safeguard of regulatory discretion consists in triggering the general international law defence where a treaty exception is found to be inapplicable or where the treaty provides no relevant exception1263, although this approach has encountered some setbacks in arbitral jurisprudence1264. The present chapter delves into customary international law defences, as reflected principally in the International Law Commission’s Articles on State Responsibility, and examines the extent to which these defences are practically available to states. More specifically, the analysis begins by focusing on defences under the ILC Articles, namely the circumstances precluding wrongfulness under Chapter V of these Articles1265, with special regard to the necessity defence, and continues with ius cogens, the clausula rebus sic stantibus and bribery. The chapter does not purport to be exhaustive but highlights the defences that appear more susceptible to being invoked in investment disputes; on the contrary, defences plausibly less relevant, such as distress, receive only a passing mention. A final section resumes with some concluding remarks.

1263 See also Martinez, A. (2010), Invoking State Defenses in Investment Treaty Arbitration. In Waibel, M., Kaushal, A., Chung, K.-H. and Balchin, C. (eds), The Backlash against Investment Arbitration, Alphen aan den Rijn: Kluwer Law International, p. 315 et seq. 1264 See below, Necessity and the criteria for its successful invocation. 1265 Chapter V (Articles 20-27) ILC Articles.

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A. The right to regulate under customary international law as reflected in the ILC Articles 1. General To some extent, states are able to pursue regulatory interests under public international law despite a stricto sensu breach of their conventional obligations1266. A particular expression of such regulatory freedom would be violating the substantive provisions of a treaty in circumstances where ‘wrongfulness’ is precluded under customary law. The dicta of customary international law in this context are reflected in the International Law Commission’s Articles on State Responsibility, commonly – but not without significant controversy1267 – deemed to ‘codify’ customary international law1268.

1266 See Kurtz, J. (2010), p. 41; Markert, L. (2011), op cit., p. 155-157, esp. 156; CMS Annulment, op cit., para. 134. 1267 Caron, D. D. (2002), The ILC Articles on State Responsibility: The Paradoxical Relationship Between Form and Authority, AJIL 96; Sloane, R. D. (2012), op cit., generally, and especially p. 450-453, 471. See further Crawford, J. (1999a), Addendum to the Second Report on State Responsibility, A/CN.4/498/Add.2, ILC, 51st session, paras 278, 282, 291; Christakis, T. (2007), « Nécessité n’a pas de loi »? La nécessité en droit international, in SFDI (ed.), La nécessité en droit international, Colloque de Grenoble, Paris: A. Pedone, p. 30 et seq.; Heathcote, S. (2007), Est-ce que l’état de nécessité est un principe de droit international coutumier? RBDI 1; Kurtz, J. (2010), op cit., p. 14-15; Kalderimis, D. (2012), Systemic Integration and International Investment Law – Some Practical Reflections, SIEL Third Biennial Global Conference Working Paper No. 2012/46 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101772, p. 11; Crawford, J. (2011), op cit., p. 24. Cf. Stern, B. (2003), La responsabilité internationale – Perspectives récentes, Cursos Euromediterràneos Bancaja de Derecho Internacional VII, p. 661. 1268 E.g. CMS Award, op cit., para. 315; CMS Annulment, op cit., para. 130; Enron Award, op cit., para. 303; Sempra Award, op cit., para. 344; Total Decision on Liability, op cit., para. 220; Noble Ventures Award, op cit., para. 69; Jan de Nul N.V. and Dredging International N.V. v. Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006, paras 84, 89; El Paso Award, op cit., para. 617; see also ILC (2001), op cit., General commentary, para. 1; Alvarez, J. E. and Khamsi, K. (2009), op cit., passim; Franke, F. (2011), The Custom of Necessity in Investor-State Arbitrations, in Hofmann, R. and Tams, C. (eds), International Investment Law and General International Law, Baden Baden: Nomos, p. 123 et seq. Cf. Crawford, J. (2011), op cit., p. 24.

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The ILC Articles contain six circumstances precluding wrongfulness, in other words six defences. These are: consent1269, self-defence1270, countermeasures in respect of an internationally wrongful act1271, force majeure1272, distress1273, and necessity1274. Not all six defences are equally pertinent to investment disputes1275, and it is quite apparent that these provisions refer to exigent or extraordinary circumstances1276. In dealing with measures taken in extremis, they resemble the limited exception regarding circumstances of extreme emergency in Indian BIT practice1277 and relate to situations typically falling outside the regular policymaking activity of governments. The ensuing analysis canvasses, in a first step, the necessity defence and the criteria for its successful invocation. The defence’s availability in practice and the question of whether customary international law provides a national security defence form the epicentre of the two subsequent sections. The discussion then contemplates force majeure and distress, and the overarching issues of the legal nature and effects of upholding ILC defences, including, crucially, the question of compensation. A final section offers some further reflections on the right to regulate and the ILC defences. 2. Necessity i. Necessity and the criteria for its successful invocation Necessity is the most important and the most widely-canvassed general public law defence in investment dispute settlement involving voluntary state conduct1278 in non-performance of an international obligation. Its impor-

1269 1270 1271 1272 1273 1274 1275 1276

Article 20 ILC Articles. Article 21 ILC Articles. Article 22 ILC Articles. Article 23 ILC Articles. Article 24 ILC Articles. Article 25 ILC Articles. See also below, ILC defences and the right to regulate. Some further reflections. See below, Does customary international law provide a national security defence? Also: Necessity and the criteria for its successful invocation. 1277 See Article 12(2) Indian Model BIT (2003). See Chapter V, Circumstances of extreme emergency. 1278 ILC (2001), op cit., Commentary on Article 25, para. 2.

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tance is due both to its relevance in the investment context, as testified by its invocation in recent awards1279, as well as its ostensible propinquity to the essential security interests exception1280. The present section opens with some general remarks and a note on methodology, including on the relevance of the Argentine crisis disputes to the interpretation of necessity, and it proceeds with a closer inspection of the conditions for the invocation of the defence. In proposing the incorporation of the customary international law defence of necessity in the predecessor of current Article 25 ILC Articles, Roberto Ago, Special Rapporteur to the International Law Commission, explained in his Report that necessity should not be ‘totally’ excluded from the list of possible preclusions of state responsibility for an internationally wrongful act. He noted that necessity is profoundly engrained in the conscience of the international community (‘finding a closed door it would enter by the window’, he observed; ‘if need be, in forms other than its own’) and erasing it from the circumstances precluding wrongfulness could lead to a situation of summum ius, summa iniuria1281. Presently, the necessity defence in customary international law is reflected in Article 25 ILC Articles, aptly entitled Necessity. That provision reads: ‘1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:

1279 See below; see also Sloane, R. D. (2012), op cit., p. 447, 454, 460, 498 and passim. 1280 See generally Chapter V, Essential security interests. 1281 Ago, R. (1980), op cit., para. 80. (‘[…] Il se peut que, dans une optique erronée de « développement progressif », quelqu’un propose de gommer totalement la notion de « nécessité » du cadre des excuses possibles de l’illicéité d’un comportement de l'Etat. […] II faut éviter que l’exigence essentielle de l’observation du droit ne finisse par nous mettre dans des situations que l’adage summum jus, summa injuria caractériserait parfaitement. D’ailleurs, la notion d’« état de nécessité » est par trop enracinée dans la conscience des membres de la communauté internationale comme dans celle des membres des sociétés étatiques. Chassée par la porte, elle rentrerait par la fenêtre — sous des formes autres que les siennes, au besoin. On n'aurait alors que le désavantage de dénaturer et d’obscurcir d'autres notions dont l’exacte délimitation n'est pas moins essentielle.’) See further Johnstone, I. (2005), The Plea of “Necessity” in International Legal Discourse: Humanitarian Intervention and Counter-terrorism, CJTL 43, p. 354-355.

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(a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and (b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole. 2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if: (a) the international obligation in question excludes the possibility of invoking necessity; or (b) the State has contributed to the situation of necessity.’

Necessity is an exception particularly prone to abuse1282, partly in view of its indeterminate nature that allows it to be invoked against a wide array of obligations1283. In the words of the CMS Tribunal, ‘any State could invoke necessity to elude its international obligations. This would certainly be contrary to the stability and predictability of the law.’1284 Indeed, it has been observed that it is not possible to talk of a ‘law of necessity’, rather necessity signifies the absence of law1285. Consequently, and as even a cursory inspection of Article 25 ILC Articles demonstrates, application of the necessity defence is available to states subject to very strict criteria1286.

1282 ILC (2001), op cit., Commentary on Article 25, paras 2, 13-14; see also International Law Commission (1981), Report of the Commission to the General Assembly on the work of its thirty-second session, YBILC 1980, Vol. II, Part Two, NY: UN, p. 48, paras 29-30; Crawford, J. (1999a), op cit., para. 278, 281; Ago, R. (1980), op cit., paras 71 et seq.; Kurtz, J. (2010), p. 17; Sloane, R. D. (2012), op cit., p. 450, also p. 473, 486-487; Heathcote, S. (2010), Circumstances Precluding Wrongfulness in the ILC Articles on State Responsibility: Necessity, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP, p. 491-492; Heathcote, S. (2007), op cit., p. 89; Franke, F. (2011), op cit., p. 124, 129. – This reflection is reinforced by the history of the invocation of necessity, see Salmon, J. J. A. (1984), op cit., p. 241-242; Salmon, J. J. A. (1987), op cit., p. 127 et seq.; Christakis, T. (2007), op cit., p. 14-15. 1283 ILC (2001), op cit., Commentary on Article 25, para. 14; Ago, R. (1980), op cit., paras 71 et seq.; Christakis, T. (2007), op cit., p. 14-16; see further Heathcote, S. (2010), op cit., p. 491, 496-497; Heathcote, S. (2007), op cit., p. 65. 1284 CMS Award, op cit., para. 317. 1285 Salmon, J. J. A. (1984), op cit., p. 240 with citations; Christakis, T. (2007), op cit., p. 13-14 with further citations, contra: p. 16 et seq.; Ago, R. (1980), op cit., para. 7 et seq.; Sloane, R. D. (2012), op cit., p. 478, 490. 1286 See also ILC (2001), op cit., Commentary on Article 25, paras 2, 14; Kurtz, J. (2010), p. 17. See further Salmon, J. J. A. (1984), op cit., p. 242-244, 263, on the reluctance with which necessity was faced until its eventual acceptance by the ILC. Cf. below, Practical availability of the necessity defence.

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In the first place, necessity comes with a negative phrasing1287, not precluding the wrongfulness of an act not in conformity with an international obligation of the state invoking it, unless some conditions are met. The negative wording does not ipso facto impact the scope or substance of the provision, but it indicates the stringency which forms the basis for recognition of the necessity plea as well as its exceptional nature1288. In addition, the number of formulaic requirements that need to be cumulatively met raises high the threshold for the defence’s successful invocation1289. Inquiring into necessity, the subsequent discourse makes extensive reference to its interpretation in awards delivered in the wake of the economic crisis that enveloped Argentina in 2001. A caveat is in order: the reason for deferring to these awards is not that they form models of treaty interpretation. Quite on the contrary, at least as regards the relationship between treatybased exceptions and general international law, the Argentine awards have hardly produced satisfactory results and, as a consequence, have elicited widespread criticism1290. Since the analysis relies extensively on their findings, it is important to be aware of some of their peculiarities. It is noted, in particular, that although one of the treaties under interpretation contained an essential security interests and public order exception1291, several among the adjudicating tribunals were not poised to give it effect, rendering nugatory the regulatory discretion it was intended to grant; conflating the treaty-based essential security interests exception with the customary defence of necessity, these tribunals proceeded to apply customary international law before

1287 ILC (2001), op cit., Commentary on Article 25, para. 14; see further ILC (1981), op cit., p. 51, para. 40. 1288 ILC (2001), op cit., Commentary on Article 25, para. 14; ILC (1981), op cit., p. 51, para. 40; see also Ago, R. (1980), op cit., para. 12; Salmon, J. J. A. (1984), op cit., p. 244; Christakis, T. (2007), op cit., p. 18; Franke, F. (2011), op cit., p. 129. 1289 See Enron Award, op cit., para. 313. 1290 E.g. see CMS Annulment, op cit.; Sempra Annulment, op cit.; Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/ 01/3, Decision on the Application for Annulment, 30 July 2010 (hereinafter Enron Annulment). For a critical appraisal of some of these awards, see generally BurkeWhite, W. W. and Staden, A. von (2008), op cit.; Sloane, R. D. (2012), op cit., p. 498 et seq.; Kurtz, J. (2010), op cit., p. 25 et seq.; Ortino, F. (2012), Legal Reasoning of International Investment Tribunals: A Typology of Egregious Failures, JIDS 3 (1), p. 41 et seq. – Contrast Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 427-440; also Alvarez, J. E. (2011a), op cit., p. 247-339. 1291 Article XI US-Argentina BIT.

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and in lieu of treaty law1292. So, the Enron Tribunal found that, since the USArgentina BIT provided no definition of essential security interests, the meaning and conditions for the application of the exception needed to be sought elsewhere, which led it to read the customary law defence of necessity and its requirements into the treaty1293. Following in similar steps, the Sempra Tribunal imported the customary international law defence, noting that ‘the Treaty provision is inseparable from the customary law standard insofar as the definition of necessity and the conditions for its operation are concerned’1294, despite the absence of the term ‘necessity’ from the treaty exception. The CMS Tribunal, more prosaically, conflated the two defences1295, and, to all appearances, also the necessity defence with force majeure1296. In turning down Argentina’s defences, including the essential security interests exception in Article XI US-Argentina BIT, it reasoned somewhat esoterically that ‘the Treaty will prevail over any plea of necessity’1297. It is evident that Article XI is absent from this understanding of the term ‘Treaty’! More recent tribunals did not eschew the interpretative hurdles that led some of their predecessors to confound treaty law with customary international law. The syllogism of the El Paso Tribunal is sadly enlightening in this respect. In what may be deemed an abuse of the principle of systemic

1292 E.g. CMS Award, op cit., Enron Award, op cit., Sempra Award, op cit. See selectively, Kurtz, J. (2010), p. 22 et seq.; Sloane, R. D. (2012), op cit., p. 498 et seq.; Ortino, F. (2012), op cit., p. 43-44; Burke-White, W. W. and Staden, A. von (2008), op cit., p. 322-324. See also Chapter VIII, The nexus requirement; and further Chapter V, General observations on essential security interests. 1293 Enron Award, op cit., para. 333, also 334. 1294 Sempra Award, op cit., para. 376 (emphasis added); see also paras 375, 377-378. 1295 E.g. see CMS Award, op cit., para. 389, referring to the ‘state of necessity, under the rule contained in Article XI of the Treaty’! Also, ibid., paras 353 et seq. See also CMS Annulment, op cit., paras 129-131. 1296 CMS Award, op cit., para. 356; also para. 354. Generally, on the overlap or conflation between necessity and force majeure, see Jean Salmon in Salmon, J. J. A. (1984), op cit., p. 270; Salmon, J. J. A. (1987), op cit., p. 163; also, Sloane, R. D. (2012), op cit., p. 454, 488-489; Heathcote, S. (2010), op cit., p. 495. Cf. ILC (1978), op cit., paras 20 et seq. 1297 CMS Award, op cit., para. 354.

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integration1298, the tribunal, evoking the need to ‘take into account, inter alia, “any relevant rules of international law applicable in the relations between the Parties” ’, held that: ‘Surely one of those general rules of international law is that codified in Article 25(2) of the ILC’s Articles on the Responsibility of States, which provides, in part, that: “In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:... (b) The State has contributed to the situation of necessity.” ’1299

In importing the requirement that the state must not have contributed to the situation of necessity from customary law into the treaty exception1300, the El Paso Tribunal resorted to an examination that, not unlike other Argentine tribunals, confounded the requirements of the necessity defence with the treaty-based exception1301. And thereby it introduced an arbitrary element, that of the unavailability of the defence if the state has contributed to the crisis, from customary law into the treaty exception. It is to be noted that the tribunal offered no justification for this selection of only one particular requirement of the plea of necessity. In short, some of these tribunals summarily declared the applicability of the customary law defence engaging in a reasoning that flies in the face of

1298 Article 31(3)(c) VCLT. On the principle of systemic integration, see McLachlan, C. (2005), op cit., McLachlan, C., Shore, L. and Weiniger, M. (2007), op cit., paras 7.69-7.70, see also para. 1.45; Wälde, T. W. (2009), Interpreting Investment Treaties: Experiences and Examples, in Binder, C., Kriebaum, U., Reinisch, A. and Wittich, S. (eds), International Investment Law for the 21st Century – Essays in Honour of Cristoph Schreuer, NY: OUP, p. 769-777. See further Kalderimis, D. (2012), op cit. 1299 El Paso Award, op cit., paras 616-617. 1300 El Paso Award, op cit., paras 555, 616-617 et seq., 649-670. 1301 El Paso Award, op cit., paras 617 et seq. and, mainly, paras 649-670. Annulment proceedings are under way, instituted in March 2012. It is noteworthy that the tribunal’s findings include a rejection of ‘Argentina’s defence of necessity’ (ibid., para. 752, emphasis added). Cf. International Law Commission (2006), Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the study group, finalised by Martti Koskenniemi, A/CN.4/L.682, Geneva: UN, paras 79-82.

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effective treaty interpretation1302 and, ultimately, ‘interpreting’ contra legem1303. This demonstrates that some of their findings (below) need to be taken with a pinch of salt, particularly where the criteria for an appeal to the necessity defence have been elaborated in view of the treaty exception rather than the plea of necessity under customary law. Yet these awards are still worth looking into on account of their detailed discussion of the requirements for the successful invocation of the necessity defence under customary international law. On the basis, inter alia, of these awards, the requirements for the operation of necessity will now be surveyed in turn. The ‘only way’ requirement: The first condition that Article 25 imposes is that the state act must be ‘the only way’ for the protection of an essential interest (the meaning of the term ‘essential interest’ has already been discussed1304). The ‘only way’ requirement has been interpreted to preclude invocation of the necessity defence if other lawful means are available to the state, even if these are costlier or less convenient1305. Where such means exist, the state continues to be bound by its international obligations and may not have recourse to the necessity defence1306. It has also been observed, with reference to the ‘only way’ requirement, that the element of necessity is intrinsic to the defence and ‘any conduct going beyond what is strictly necessary for the purpose will not be covered’1307.

1302 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 323, see also p. 324, 344; Sloane, R. D. (2012), op cit., p. 499; see also Binder, C. (2009), Changed Circumstances in Investment Law: Interfaces between the Law of Treaties and the Law of State Responsibility with a Special Focus on the Argentine Crisis, in Binder, C., Kriebaum, U., Reinisch, A. and Wittich, S. (eds), International Investment Law for the 21st Century – Essays in Honour of Cristoph Schreuer, NY: OUP, p. 618. Contra Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 435-437. 1303 See also Binder, C. (2009), op cit., p. 619, describing the approach adopted by the CMS, Enron and Sempra Tribunals as ‘difficult to recognize as treaty interpretation and application of Article 31(3.c) VCLT, as it disregards the wording and structure of Article XI of the Argentina-US BIT. It conflicts with the process of interpretation [...]’. 1304 Chapter V, Essential interests. 1305 ILC (2001), op cit., Commentary on Article 25, para. 15; see also ILC (1981), op cit., p. 49, para. 33. 1306 ILC (2001), op cit.; ILC (1981), op cit. 1307 ILC (2001), op cit., Commentary on Article 25, para. 15; see also ILC (1981), op cit., p. 49, para. 33; see also Salmon, J. J. A. (1984), op cit., p. 246 citing the ILC (1980).

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This argument was directly relied upon by the CMS Tribunal which adduced ‘a variety of alternatives’ to buttress the position that the measures taken by Argentina during the crisis were not the only means available1308. Confining itself to identifying the existence of other options, the tribunal stopped short of offering its judgment on which policy alternative would have been preferable1309. Similarly, the Enron Tribunal observed that ‘[a] rather sad world comparative experience in the handling of economic crises, shows that there are always many approaches to address and correct such critical events, and it is difficult to justify that none of them were available in the Argentine case’1310. The Enron Tribunal too declined to suggest an alternative that Argentina might have adopted instead1311. A few months later, its arguments were rehearsed almost to the word by the Sempra Tribunal1312. If, as the Enron Tribunal conceded, an economic crisis may qualify as an essential (security) interest1313, the above line of reasoning denies necessity effective interpretation in respect of such a crisis1314. The postulate that there are always many alternatives indicates that, according to this tribunal, the ‘only way’ requirement will never be satisfied in the case of an economic crisis. By contrast, the LG&E Tribunal, which examined the necessity defence in a complementary way, since it had already determined that the essential security interests exception in the US-Argentina BIT was ‘sufficient to excuse Argentina’s liability’1315, briefly dwelled on the ‘only way’ requirement and found that it was satisfied. The tribunal looked at the severity of the crisis and concluded that, in the circumstances, ‘an economic recovery package was the only means to respond to the crisis’ and, while a number of ways to draft the economic recovery plan may have been possible, ‘an across-theboard response was necessary’1316. Questions can be raised about this loose

1308 1309 1310 1311 1312 1313

CMS Award, op cit., paras 323-324. CMS Award, op cit., para. 323. Enron Award, op cit., para. 308. Enron Award, op cit., para. 309. Sempra Award, op cit., paras 350-351. Enron Award, op cit., para. 332. See also Chapter V, Essential security interests, economic crises and economic security. 1314 Cf. Kalderimis, D. (2012), op cit., p. 10. On effective treaty interpretation, see note 431 . 1315 LG&E Decision on Liability, op cit., para. 245. 1316 LG&E Decision on Liability, op cit., para. 257.

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interpretation of the ‘only way’ requirement1317, yet, the approach adopted by the LG&E Tribunal has the advantage of rendering the provision effective. The ‘grave and imminent peril’ requirement. The second requirement enounced in the first subparagraph of Article 25(1) ILC Articles is that the protection of the state’s essential interest is against ‘grave and imminent peril’. In its Gabčíkovo-Nagymaros Judgment, the ICJ addressed the ‘grave and imminent peril’ proviso in the application of the necessity defence, in the ensuing terms: ‘The word “peril” certainly evokes the idea of “risk”: that is precisely what distinguishes “peril” from material damage. But a state of necessity could not exist without a “peril” duly established1318 at the relevant point in time; the mere apprehension of a possible “peril” could not suffice in that respect. It could moreover hardly be otherwise, when the “peril” constituting the state of necessity has at the same time to be “grave” and “imminent”. “Imminence” is synonymous with “immediacy” or “proximity” and goes far beyond the concept of “possibility”. As the International Law Commission emphasized in its commentary, the “extremely1319 grave and imminent” peril must “have been a threat to the interest at the actual time” (Yearbook of the International Law Commission, 1980, Vol. I I, Part 2, p. 49, para. 33). That does not exclude, in the view of the Court, that a “peril” appearing in the long term might be held to be “imminent” as soon as it is established, at the relevant point in time, that the realization of that peril, however far off it might be, is not thereby any less certain and inevitable.’1320

1317 Reinisch, A. (2007), Necessity in International Investment Arbitration – An Unnecessary Split of Opinions in Recent ICSID Cases? JWI&T 8, p. 200; Bjorklund, A. K. (2011), The Necessity of Sustainable Development? In Cordonier Segger, M.-C., Gehring, M. W. and Newcombe, A. (eds), Sustainable Development in World Investment Law, Alphen aan den Rijn: Kluwer Law International, p. 388; Kulick, A. (2012), op cit., p. 138. 1318 It has been noted that the peril needs to be certain and that the rule vani timoris justa excusatio non est (viz. unsubstantial fears may not serve as a lawful excuse) is applicable in its respect. Salmon, J. J. A. (1984), op cit., p. 253, citing Paul Foriers. 1319 The ICJ in this case delivered its Judgment relying for the necessity defence on Article 33, the predecessor to Article 25 ILC Articles. This Article too made no reference to extremely grave and imminent peril, but the ILC Commission estimated that ‘the peril […] must have been extremely grave, that it must have been a threat to the interest at the actual time, and that the adoption by that State of conduct not in conformity with an international obligation binding it to another State must definitely have been its only means of warding off the extremely grave and imminent peril which it apprehended’, see ILC (1981), op cit., p. 49, para. 33. 1320 Gabčíkovo-Nagymaros Project, op cit., para. 54.

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The International Law Commission further concurred that the peril must be ‘objectively established’ and not ‘merely apprehended or contingent’1321 but conceded that some questions, such as those relating to the environment, will often raise ‘issues of scientific uncertainty and different views may be taken by informed experts on whether there is a peril’ and on ‘how grave and imminent it is’1322. Examination of the ‘grave and imminent peril’ requirement was more perfunctorily dealt with in the Argentine awards. The CMS Tribunal simply stated that ‘the situation was difficult enough to justify the government taking action to prevent a worsening of the situation and the danger of total economic collapse’ but went on to add somewhat obscurely: ‘But neither does the relative effect of the crisis allow here for a finding in terms of preclusion of wrongfulness.’1323 The Enron and Sempra Tribunals were more unequivocal in their rejection of the presence of a ‘grave and imminent peril’, since they were not persuaded that the situation was ‘out of control or had become unmanageable’1324. The requirement for ‘non serious impairment of an essential interest of the state or states towards which the obligation exists or of the international community’. Article 25(1)(b) ILC Articles imposes a further condition for the successful invocation of the plea of necessity, that the act in question must not seriously impair an essential interest either of the state or the states to which the obligation is due, or of the international community as a whole. Accordingly, the interest pursued ‘must outweigh all other considerations, not merely from the point of view of the acting State but on a reasonable assessment of the competing interests, whether these are individual or collective’1325.

1321 ILC (2001), op cit., Commentary on Article 25, paras 15-16. 1322 ILC (2001), op cit., Commentary on Article 25, para. 16. See further Heathcote, S. (2010), op cit., p. 497-498. 1323 CMS Award, op cit., para. 322. 1324 Enron Award, op cit., para. 307, Sempra Award, op cit., para. 349. See also Chapter V, Essential security interests, economic crises and economic security. 1325 ILC (2001), op cit., Commentary on Article 25, para. 17. Despite the mention of ‘individual’ interests, this consideration comes from the observation that the ICJ in the Gabčíkovo-Nagymaros Project case ‘affirmed the need to take into account any countervailing interest of the other State concerned’ (ibid., ft. 402, emphasis added). Therefore, the individual interests in this formulation are simply seen as constituent elements of state interests.

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Analysis of the non-impairment of an essential interest of other states or the international community requirement has not been extensively expounded in the Argentine awards, since the tribunals readily concluded that it did not appear that such an essential interest had been impaired1326. However, the Enron and Sempra Tribunals introduced another requirement in examining the compatibility of Argentina’s defence with Article 25 ILC Articles. In virtually identical language, the two tribunals considered that, in relation to investment agreements, there is a need to additionally take into account whether the interests of the private parties to the dispute have been impaired, indirectly predicating this obligation on the fact that these parties are the eventual beneficiaries of the state obligations1327. Both tribunals found that the ‘essential interest of the Claimants would certainly be seriously impaired by the operation of Article XI or a state of necessity’1328. This consideration is not only foreign to Article XI, but it is also a digression from the letter of Article 25 ILC Articles1329, otherwise so closely adhered to by the tribunals. It further helps highlight the potential unsuitability of applying Article 25 ILC Articles to an investor-state dispute, a topic that is discussed later in this chapter1330. It is noteworthy that the requirement is for non-impairment of an essential interest. The term essential interest, as interpreted in Chapter V1331, has a close affinity to the concept of national security, therefore tel quel it is inapplicable to an individual. Finally, considerations of extending the non-impairment requirement to private investors aside, this criterion of the necessity plea has been decried as flying in the face of ‘political morality’, given that ‘a state may be expected – reasonably and often not inappropriately – to prioritize its own “essential interests” above those of other states and, a fortiori, those of the figurative international community as a whole’1332. The international obligation in question must not exclude the possibility of invoking necessity: The conditions for the invocation of the necessity de-

1326 CMS Award, op cit., paras 325, 358, Enron Award, op cit., paras 310, 341, Sempra Award, op cit., para. 390, LG&E Decision on Liability, op cit., para. 257, AWG Decision on Liability, op cit., para. 261. 1327 Enron Award, op cit., para. 342, Sempra Award, op cit., para. 391. 1328 Enron Award, op cit., para. 342, Sempra Award, op cit., para. 391. 1329 Bjorklund, A. K. (2011), op cit., p. 390, but cf. p. 391. Contrast Franke, F. (2011), op cit., p. 144. 1330 Below, ILC defences and the right to regulate. Some further reflections. 1331 See Chapter V, Essential interests. 1332 Sloane, R. D. (2012), op cit., p. 478, see further p. 479-481, 487-488.

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fence do not stop there. The first subparagraph of Article 25(2) ILC Articles establishes the impossibility of pleading necessity as a ground for precluding wrongfulness when the international obligation excludes reliance on the necessity defence. The question therefore raised is what signals exclusion and whether this may be implicit. The latter topic is also considered with respect to whether the presence or the absence of an exception clause designates such exclusion. The ILC offers an example of an explicit exclusion in the form of humanitarian conventions applicable to armed conflicts that preclude invocation of a state of necessity 1333. However, there is no apparent evidence that reliance on the necessity defence is expressly precluded in investment treaties1334. At the same time, it is unclear whether the exclusion of the possibility of invoking necessity needs to be explicit, or whether an implicit exclusion might also be accepted. According to the ILC Commentaries, even an implicit non-availability of the necessity defence might be countenanced1335, but, remarkably, the examples used in that context refer to exclusion which ‘emerges clearly from the object and the purpose of the rule’1336. Ex-Article 33, predecessor to current Article 25 ILC Articles, provided expressis verbis for the impossibility of invoking the necessity defence ‘if the international obligation with which the act of the State is not in conformity is laid down by a treaty which, explicitly or implicitly, excludes the possibility of invoking the state of necessity with respect to that obligation’1337. Nonetheless, this phrasing was not adopted in the ultimate ‘codification’ of the ILC Articles. It is reasonable to argue that any further limitation on the invocation of the necessity plea should be, if not explicit, at the very least unequivocally clear to justify reliance on it. Dispensing with a customary law defence in

1333 ILC (2001), op cit., Commentary on Article 25, para. 19. 1334 Very selectively, see Austrian Model BIT (2011), BLEU Model BIT (2002), Canadian Model BIT (2012), Chinese Model BIT (2003), Colombian Model BIT (2007), Dutch Model BIT (2004), Finnish Model BIT (2002), French Model BIT (2006), German Model BIT (2009), Indian Model BIT (2003), Norwegian Draft Model BIT (2007), Swedish Model BIT (2003), UK Model BIT (2008) and US Model BIT (2012). 1335 ILC (2001), op cit., Commentary on Article 25, para. 19; see also Christakis, T. (2007), op cit., p. 19. 1336 ILC (2001), op cit., Commentary on Article 25, para. 19. 1337 Ex-Article 33(2)(b) ILC Articles (emphasis added). See further Salmon, J. J. A. (1987), op cit., p.153.

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the absence of explicit language qualifying such a waiver would be digressing from firmly-established canons of legal interpretation1338. This opinion finds also basis in ICJ jurisprudence. In the ELSI case, the International Court of Justice posited, with reference to the exhaustion of local remedies rule, that it was ‘unable to accept that an important principle of customary international law should be held to have been tacitly dispensed with, absent any words making clear an intention to do so’1339. An interpretation that permits an appeal to the customary law defence could also be reached by means of the in dubio mitius principle, whose dogma is precisely that, in case of doubt, the interpretation should manifest deference for state conduct à titre de souverain1340. Nonetheless, this view has not found unqualified acceptance in arbitral jurisprudence. First, as regards, the absence of an explicit essential security interests exception, while the AWG Tribunal had no difficulty accepting that non-presence of such an exception does not interfere with the necessity defence1341, the BG Tribunal took an opposing stance in the matter. This facet of the BG Award will be revisited in Chapter XI1342, but a few remarks are appropriate at this stage. Although it could not be claimed that an exclusion of the availability of the necessity defence emerged plainly from the object and purpose of the UK-Argentina BIT, as per the ILC Commentaries, that tribunal relied on these same Commentaries in order to accept an implicit exclusion of the invocation of necessity and stated summarily that ‘[i]t can be argued that the Argentina-U.K. BIT implies such an exclusion’1343. The tribunal offered no explanation for this statement, although the tacit exclusion it invoked may stem from the lack of an explicit exception in the

1338 See Bjorklund, A. K. (2009), Economic Security Defenses in International Investment Law, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2008-2009, NY: OUP, p. 489-490; Bjorklund, A. K. (2011), op cit., p. 392. 1339 ICJ, Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment, 20 July 1989, ICJ Reports 1989, p. 15, para. 50. 1340 See Lauterpacht, H. (1949), op cit., p. 58. See further on the principle in dubio mitius and limitations on state freedom, Newcombe, A. (2011), op cit., p. 363 and Santulli, C. (2005), op cit., para. 862. 1341 E.g. see AWG Decision on Liability, op cit., para. 262. 1342 Chapter XI, The protection of essential security interests in the absence of an express treaty-based right to regulate. 1343 BG Award, op cit., para. 409.

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BIT1344. Objection to this part of the decision was raised in Argentina’s Petition to vacate or modify the award1345, on the basis of the tribunal’s failure to substantiate its finding of an implicit exclusion1346. The award has been consequently vacated, although on unrelated grounds1347. Applying the ICJ’s reasoning in the aforecited ELSI case to these facts, treaty silence on exceptions per se should not be deemed to indicate a wish to exclude the customary law defence1348, since an implicit exclusion is unlikely to emerge clearly from mere silence1349. On the contrary, according to a venerable maxim, ‘qui tacet consentit’, silence implies consent, therefore the view that bars recourse to the customary law defence on the basis of the absence of a treaty exception does not appear very congruent. Secondly, among tribunals adjudicating in the presence of Article XI’s essential security interests exception in the US-Argentina BIT, the LG&E Tribunal noted that the exception’s existence indicates that the parties may invoke necessity 1350. It did not delve into whether the defence would have been available absent the exception. But a different approach was adopted by the El Paso Tribunal. Pronouncing on Article XI being lex specialis visà-vis Article 25 ILC Articles1351, which purportedly meant that ‘to fully analyse and apply’ Article 25 ILC Articles could be dispensed with1352, the tribunal found that Article XI could not be successfully evoked1353 and it did not examine whether the customary law defence may come into play. Al1344 See also Chapter XI, The protection of essential security interests in the absence of an express treaty-based right to regulate. 1345 Argentina v. BG Group PLC., Petition to Vacate or Modify Arbitration Award, 20 March 2008, United States District Court for the District of Columbia, Case No. 08-0485 RBW. 1346 Ibid., paras 65-68. The BG Award offers little help by way of clarification of the criteria for a successful invocation of Article 25 ILC Articles, whose application is discounted with startling breviloquence (‘The Tribunal does not believe that Argentina has met the “very restrictive conditions”’, ibid., para. 411). 1347 See Argentina v. BG Group PLC., Appeal, United States District Court for the District of Columbia (No. 1:08-cv-00485), argued November 10, 2011, decided January 17, 2012, No. 11-7021. 1348 Cf. Christakis, T. (2007), op cit., p. 20; Binder, C. (2009), op cit., p. 626, 628. 1349 E.g. see the argument in Binder, C. (2009), op cit., p. 626, citing A. Weber. See also Burke-White, W. W. and Staden, A. von (2008), op cit., p. 324. 1350 LG&E Decision on Liability, op cit., para. 255. 1351 El Paso Award, op cit., para. 552. On the lex specialis principle, see generally ILC (2006), op cit., paras 46 et seq., and, in particular, paras 79-82. 1352 Ibid., para. 552. 1353 Ibid., para. 665.

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though this does not directly relate to whether invocation of the necessity defence under Article 25 ILC Articles is precluded on account of the presence of an explicit exception in the treaty, the result is strikingly similar. Nevertheless, if invocation of an express treaty-based exception is rejected, the necessity defence under customary law needs still to be examined as a residual defence, whether according to the lex specialis principle or the taxonomy of primary and secondary rules1354. Indeed, there is no reason why, where a treaty does not determine its relationship with customary international law and its defences, customary and treaty norms do not coexist ‘separately and independently’1355. A conventional rule only displaces a customary norm if it explicitly indicates that does so or if the two rules are in direct conflict so that they cannot both be said to be applicable1356. In sum, it appears that a tacit exclusion, especially when it does not emerge clearly from the rule under interpretation, should not prevent successful appeal to the necessity defence, although it may be apposite to take into account that tribunals could deem differently. The state must not have contributed to the state of necessity: The requirement introduced by the second subparagraph of Article 25(2) ILC Articles is that the state must not have contributed to the situation of necessity. The International Law Commission has explicated that, for the defence to become unavailable under this provision, the state’s contribution to the necessity must be ‘sufficiently substantial and not merely incidental or peripheral’1357. In order to better understand this element of the defence, it is worth looking closer at some of the awards that have dealt with it. The CMS Tribunal required a sufficiently substantial contribution to the crisis, which it reasoned was present, while exogenous factors that aggravated the situation did not exempt the state from its responsibility1358. The interpretation of the Enron and Sempra Awards is somewhat problematic: the tribunals acknowledged the intervention of both endogenous and exogenous factors, without dis1354 See below, Legal nature and operation of the defence. 1355 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 324. See also Military and Paramilitary Activities In and Against Nicaragua, op cit., para. 179. Contra Christakis, T. (2007), op cit., p. 21. 1356 Burke-White, W. W. and Staden, A. von (2008), op cit., p. 324; also, ILC (2001), op cit., Commentary on Article 55, para. 4; but cf. ILC (2006), op cit., paras 91-94. 1357 ILC (2001), op cit., Commentary on Article 25, para. 20. Cf. AWG Decision on Liability, op cit., para. 263. 1358 CMS Award, op cit., para. 329.

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tinction as to their respective weight of contribution to the crisis1359, and concluded with no further elaboration that ‘there has been a substantial contribution of the State to the situation of necessity and it cannot be claimed that the burden falls entirely on exogenous factors’1360, therefore Argentina should be held responsible. More recently, the El Paso Tribunal proceeded to a well-documented and substantiated scrutiny of Argentina’s potential contribution to the crisis, devoting no less than 22 paragraphs to the analysis1361. It held, in particular, that both internal and external factors had been at the root of Argentina’s economic predicament, but that the country’s ‘failure to control several internal factors, in particular the fiscal deficit debt accumulation and labour market rigidity, substantially contributed to the crisis’1362. The evidence concerning Argentina’s actions and omissions and Argentina’s own acknowledgment of an ‘inability to maintain a fiscal discipline’ led the tribunal to conclude that the country had contributed to the crisis ‘to a substantial extent’1363. However, the El Paso Tribunal’s interpretation of the state’s contribution to the crisis needs to be read with reserve, since it did not take place under Article 25 ILC Articles but under Article XI US-Argentina BIT1364, despite the absence of any such requirement in the latter. The LG&E and Continental Casualty Tribunals came to a different conclusion regarding Argentina’s contribution to the state of necessity. The LG&E Tribunal observed that ‘the attitude adopted by the Argentine Government has shown a desire to slow down by all the means available the severity of the crisis’1365 and found a lack of evidence to demonstrate that the state had contributed to the crisis1366. In its turn, the Continental Casualty Tribunal proceeded to a detailed analysis of the situation, but like the El Paso Tribunal, it appeared to confound contribution to the situation of necessity under Article 25 ILC Articles and the BIT’s essential security in-

1359 Enron Award, op cit., para. 311, Sempra Award, op cit., para. 353. 1360 Enron Award, op cit., para. 312, and the almost identical statement in the Sempra Award, op cit., para. 354. 1361 El Paso Award, op cit., paras 649-670. 1362 El Paso Award, op cit., para. 656. 1363 El Paso Award, op cit., para. 665. 1364 El Paso Award, op cit., para. 665 (‘Argentina contributed to the crisis to a substantial extent, so that Article XI cannot come to its rescue’, emphasis added). 1365 LG&E Decision on Liability, op cit., para. 256. 1366 Ibid., para. 257.

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terests exception1367. In adjudging whether there had been contribution, the tribunal recognised the state’s responsibility for its economic policy1368, but reasoned that the economic and exchange rate policies that eventually became unsustainable and engendered the crisis were considered ‘sound economic policies which had been beneficial for years to Argentina’s economy’ and had been ‘praised by the international financial community and by many qualified observers’, such as the IMF and the United States1369. The tribunal further remarked that arguments had been put forward both to the effect that Argentina could have rejected the policies recommended to it, thereby digressing from the path it had eventually taken, and, the counter-contention, that it could have pursued them with more determination1370. Both scenarios, the tribunal stated, received conflicting appraisals, and it concluded that, in view of the evidence submitted to it, the crisis could have been avoided only if different policies had been adopted years earlier and ‘against the advice and support that Argentina was receiving from the outside’1371. Depending on the extent to which an arbitral tribunal is prepared to manifest deference to the host state, the requirement for non-contribution to the situation of necessity may prove particularly difficult to meet. Compliance with peremptory norms: Besides the requirements emanating from Article 25 ILC Articles, an additional condition for the successful invocation of the necessity defence exists in a ‘complementary’ provision1372, that of Article 26 ILC Articles, which concerns state compliance with peremptory norms. By virtue of Article 26 ILC Articles, neither necessity nor any other defence provided for under Chapter V of the ILC Articles may be invoked, if the state action or omission is not in conformity with an obligation arising under ius cogens1373.

1367 1368 1369 1370 1371 1372

Continental Casualty Award, op cit., para. 234-236. Ibid., para. 235. Ibid., para. 235. Ibid., para. 236. Ibid., para. 236. Cf. ex-Article 33 ILC Articles which included this requirement within the necessity provision to the effect that ‘[i]n any case, a state of necessity may not be invoked by a State as a ground for precluding wrongfulness […] if the international obligation with which the act of the State is not in conformity arises out of a peremptory norm of general international law’. 1373 On this, see below, Ius cogens.

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ii. Practical availability of the necessity defence The confluence of criteria required to successfully invoke the necessity defence under customary international law, at least as expressed in the ILC Articles, and the stringency with which these have been applied in investment arbitration raise the threshold so high that the defence becomes practically unavailable in the overwhelming majority of cases1374. Particularly, the examination of the necessity defence and its applicability in circumstances of economic turmoil as interpreted by some of the Argentine crisis tribunals do not yield satisfactory results1375. For instance, taking a literal interpretation of the ‘only way’ requirement appears to exclude successful invocation of the necessity defence in virtually any context, and especially in a case of economic necessity1376. This raises questions around the compatibility of this approach with the principle of effective treaty interpretation1377. Or, to pursue the syllogism a bit further, a strict interpretation of the requisite that the state must not have contributed to the state of necessity, will be probably equally conducive to the unavailability of the defence1378. It is difficult to imagine that a state will not have any contribution to a situation of necessity1379; in the case of an economic crisis, as in the case of an ecological disaster, an epidemic, etc., the state will often have contributed, for example by delaying in taking appropriate action1380. From this perspective, the requirement for a ‘substantial’ contribution1381 is es-

1374 This was also recognised in ILC (2001), op cit., Commentary on Article 25, para. 2. See also: Christakis, T. (2007), op cit., p. 17, also p. 18-30, where the author tellingly makes continuous reference to ‘obstacles’ to – rather than ‘conditions’ for – the invocation of the necessity defence. See further Bjorklund, A. K. (2008), Emergency Exceptions: State of Necessity and Force Majeure, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds), The Oxford Handbook of International Investment Law, NY: OUP, p. 462 and passim; Muchlinski, P. (2009a), op cit., p. 70; Aguirre Luzi, R. (2008), BITs & Economic Crises: Do States Have Carte Blanche? in Grierson Weiler, T. J. (ed.), Investment Treaty Arbitration and International Law, NY: JurisNet, p. 188. 1375 See also above, Necessity and the criteria for its successful invocation. 1376 Bjorklund, A. K. (2009), op cit., p. 486; Bjorklund, A. K. (2011), op cit., p. 388; Franke, F. (2011), op cit., p. 143. 1377 See above, Necessity and the criteria for its successful invocation. 1378 E.g. see Salmon, J. J. A. (1984), op cit., p. 270. 1379 Salmon, J. J. A. (1984), op cit., p. 270; Sloane, R. D. (2012), op cit., p. 481, 488. 1380 Salmon, J. J. A. (1984), op cit., p. 270. 1381 See above, Necessity and the criteria for its successful invocation.

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sential and must not be passed over lightly. On the other hand, there is little doubt that the plea of necessity will be unavailing where the state has on purpose brought about the situation of necessity in order to disengage itself from its international obligations1382. The findings of some of the Argentine crisis awards as discussed in the preceding sections appear to suggest that either the ILC Articles are a restrictive ‘codification’ of the customary law defence of necessity1383 – thereby also rekindling the polemic on the appropriateness of codifying international law1384 – or that the necessity defence cannot de facto or de iure find application in economic crises1385. The apparent inability to successfully invoke necessity leads back to the familiar summum ius, summa iniuria question, the one that at some stage seemed to argue in favour of the defence’s introduction in the ILC Articles to ensure that ‘necessity’ would enter by the door rather than by the window1386. In this respect, the difficulties faced by the successful claimants of the Argentine crisis disputes in receiving payment are notable1387. iii. Does customary international law provide a national security defence? It is an opportune moment to properly ask the question: does customary international law provide a defence for national security, so that in the ab-

1382 Salmon, J. J. A. (1984), op cit., p. 270; Salmon, J. J. A. (1987), op cit., p. 163. 1383 See also Binder, C. (2009), op cit., p. 612. 1384 See Salmon, J. J. A. (1984), op cit.; Caron, D. D. (2002), op cit., generally and especially p. 859-861; Wolfke, K. (1984), Can Codification of International Law Be Harmful? in Makarczyk, J. (ed.), Essays in International Law in Honour of Judge Manfred Lachs – Etudes de droit international en l’honneur du Juge Manfred Lachs, The Hague: Martinus Nijhoff. See also Ago, R. (1968), La codification du droit international et les problèmes de sa réalisation, in Recueil d'études de droit international en hommage à Paul Guggenheim, Geneva: Institut universitaire de hautes études internationales. (Ago’s employment of the term ‘codification’ does not correspond to an attempt at defining existing custom (p. 98-99), rather it assumes a modification, even a profound one, of existing legal rules (p. 94)). See further in general Sloane, R. D. (2012), op cit. and Dupuy, P.-M. (1997), Droit des traités, codification et responsabilité internationale, AFDI 43. 1385 See also Aguirre Luzi, R. (2008), op cit., p. 188. 1386 See above, Necessity and the criteria for its successful invocation, citing Roberto Ago. 1387 Chapter I, Introduction.

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sence of an explicit exception in an IIA, customary law will step in to fill the gap? The Argentine crisis tribunals have sown some inevitable confusion on the answer to this question. By conflating the national security treatybased exception with the necessity defence in customary international law1388, some of these awards have created the illusion that customary international law deals with national security. However, despite some overlap between the national security exception and the necessity defence, the two notions remain distinct1389. As discussed, essential security interests may form only a subset of the scope of a state’s unqualified essential interests1390. Additionally, a state of necessity is quintessentially different from national security in that the strict requirements for its successful invocation are unlikely to be met in the case of non-exceptional regulatory measures taken to protect an essential security interest of the state1391. It is unlikely, for example, that necessity will exculpate a state for protecting its strategic industries1392. In other words, customary international law does not recognise a right to regulate in the national interest, unless the latter’s protection is so crucial under the circumstances that it falls under the purview of the necessity defence – or one of the other customary law defences1393. Other circumstances precluding wrongfulness under the ILC Articles may furnish defences that refer to specific national security situations; self-defence, for instance, is an apposite example of a national security interest, but its ambit is narrower than that of an essential security interests exception, its relevance being limited to the use of force in international relations1394. Either way, it is unclear that self-defence will become pertinent to an investment dispute1395. Viewed from this angle, customary international law concedes a defence of necessity – and some other related defences1396 – on the terms that have been discussed, but it does not substitute an

1388 1389 1390 1391 1392 1393 1394 1395 1396

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See above, Necessity and the criteria for its successful invocation. See also Chapter V, General observations on essential security interests. See Chapter V, Essential interests. See for example Gabčíkovo-Nagymaros Project, op cit., para. 51. See also above, General. UNCTAD (2009a), op cit., p. 36. See also ibid., p. 36. See ILC (2001), op cit., Commentary on Article 21, paras 1 et seq. See below, ILC defences and the right to regulate. Some further reflections. See also below, Force majeure and distress.

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explicit exception in an IIA1397 nor does it does offer a national security exception per se1398. 3. Force majeure and distress Two further ILC defences appear plausibly relevant in the field of investment law: force majeure and – to a lesser extent – distress. Force majeure is included in Article 23 ILC Articles. Wrongfulness of an act of a state not in conformity with an international obligation of that state is precluded in case of ‘an irresistible force or of an unforeseen event, beyond the control of the State, making it materially impossible in the circumstances to perform the obligation’1399. Wrongfulness is not precluded if the situation of force majeure is due to the conduct of the state invoking it or if the state has assumed the risk of that situation occurring1400. In contrast with a situation of necessity or distress, force majeure predicates involuntary action by the state, in other words, it engages ‘no element of free choice’1401. The availability of the defence has a positive impact on the state’s regulatory capacity, since the state is not held responsible for measures it has been compelled to take in a situation of force majeure. However, in presuming involuntary state conduct, force majeure has no bearing on preventing regulatory chill. The defence a posteriori releases the state from its responsibility for non-observance of its obligation, but has no impact on the state’s will to regulate. The defence of force majeure has not so far been extensively discussed in investment law, although it received a brief mention in the Enron and Sempra Awards1402.

1397 UNCTAD (2009a), op cit., p. 36. 1398 See also Rose-Ackerman, S. and Billa, B (2008), Treaties and National Security, NYU J Int’l L & Pol 40, p. 443. 1399 Article 23(1) ILC Articles on State Responsibility. See further Szurek, S. (2010a), Circumstances Precluding Wrongfulness in the ILC Articles on State Responsibility: Force Majeure, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP. 1400 Article 23(2) ILC Articles on State Responsibility. 1401 ILC (2001), op cit., Commentary on Article 23, para. 1. See further Salmon, J. J. A. (1987), op cit., p. 102, 122. 1402 See for instance CMS Award, op cit., paras 227, 356, Enron Award, op cit., paras 214-218, Sempra Award, op cit., paras 243-246.

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The second ILC defence canvassed here is distress. Distress as a circumstance precluding state wrongfulness refers to actions taken by an agent whose acts are attributable to the state1403 when this agent ‘has no other reasonable way, in a situation of distress, of saving the author’s life or the lives of other persons entrusted to the author’s care’, unless the situation of distress is due to the conduct of the state invoking it or the act is likely to create a comparable or greater peril1404. In contrast to necessity, which involves a risk to the very state, distress addresses the risk to the life of individual persons1405. Cases involving distress have mainly arisen in the context of aircraft or ships entering foreign state territory without prior clearance due to weather conditions or mechanical or navigational failure1406. Distress could become relevant to an investment dispute where the property of a foreign investor is destroyed by an agent of its host state. It is quite unclear however that compensation would not be due in such a scenario1407. In conclusion to the above discussion, force majeure appears as a more likely player in investment disputes, although it is likely that its own role as a state defence will also remain marginal. 4. Legal nature and effects of upholding a defence under the ILC Articles To better understand the function and consequences of the ILC Articles on the rare occasions where a defence may be upheld, two further issues need to be determined: the first of these is the legal nature and operation of the defences and the second is compensation. This part of the chapter considers these two topics in turn.

1403 1404 1405 1406

ILC (2001), op cit., Commentary on Article 24, para. 1. Article 24 ILC Articles. Salmon, J. J. A. (1984), op cit., p. 240. ILC (2001), op cit., Commentary on Article 24, para. 2; ILC (1978), op cit., paras 141, 252, also cited in ILC (2001), ibid; Szurek, S. (2010b), Circumstances Precluding Wrongfulness in the ILC Articles on State Responsibility: Distress, in Crawford, J., Pellet, A. and Olleson, S. eds. The Law of International Responsibility, NY: OUP, p. 484-486; Salmon, J. J. A. (1987), p. 116 et seq. 1407 See also below, Compensation. Cf. Szurek, S. (2010b), op cit., p. 483-484.

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i. Legal nature and operation of the defence The ILC Articles deal not with the international obligation of the state but with the legal consequences attached to its non-observance1408. In its interpretation of the ILC Articles, the International Law Commission has employed the taxonomy of primary and secondary rules, a construction principally of theoretical value1409, in order to elucidate the relationship between state obligations in international law – whether treaty-based or otherwise1410 – and state responsibility under customary international law1411 (legal nature of the defence). This distinction, however, leaves uncertain the issue of whether the ILC Articles’ defences function as an excuse or justification for non-performance. Two respective doctrinal positions have been put forward, that of their function as a preclusion of responsibility (‘excuse’) and that of their function as a preclusion of wrongfulness (‘justification’) (operation of the defence). The ensuing discussion will sketch the distinction between primary and secondary rules and, the flip side of the same coin, the function of the lex specialis doctrine, and it will reflect on whether a circumstance precluding wrongfulness under the ILC Articles constitutes an excuse or a justification. According to the dichotomy of primary and secondary rules1412, broadly corresponding to the distinction between treaty law and the law of state responsibility1413, the basic rules of international law governing the responsibility of states for internationally wrongful acts are secondary rules of state

1408 ILC (2001), op cit., General commentary, paras 1-4. See also Ago, R. (1971), Troisième rapport sur la responsabilité des États – Le fait internationalement illicite de l’Etat, source de responsabilité internationale, A/CN.4/246 and Add.1-3, ACDI II (1), paras 6 et seq. 1409 See further David, E. (2010), Primary and Secondary Rules, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP, p. 27 et seq. Cf. Sloane, R. D. (2012), op cit., p. 491. 1410 ILC (2001), op cit., General commentary, para. 1. Cf. Binder, C. (2009), op cit., p. 624 et seq. (especially 625); also Article 73 VCLT. 1411 ILC (2001), op cit., passim; Ago, R. (1971), op cit., para. 15. 1412 For a critical appraisal, see Sloane, R. D. (2012), op cit., p. 491-493; David, E. (2010), op cit., p. 27 et seq. See further Crawford, J. (1998), First Report on State Responsibility, A/CN.4/490, ILC, 50th session, paras 12 et seq.; Crawford, J. (2002), The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries, Cambridge: CUP, p. 14-16; also Kurtz, J. (2010), op cit., p. 39 et seq. 1413 Binder, C. (2009), op cit., p. 624 et seq.; see also Article 73 VCLT.

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responsibility1414. These secondary rules, the focus of the ILC Articles1415, determine the conditions under which a state may be held responsible for wrongful acts or omissions and the legal consequences that derive therefrom1416. These wrongful acts or omissions are determined on the basis of substantive obligations, not specified in the ILC Articles, namely, primary legal norms1417. It is only violation of primary rules, including obligations that emanate from IIAs, that calls into play the secondary rules1418. It is of interest to note the CMS Annulment Committee’s reasoning in this respect, which drew a technical distinction concerning the relationship between the US-Argentina BIT and customary international law. In a twofold scenario, the committee considered, on the one hand, necessity in customary international law as a question of responsibility, relying on the ILC lexicon of primary and secondary rules1419. Building its argument on the distinction between Article XI US-Argentina BIT, containing that treaty’s essential security interests exception, and Article 25 ILC Articles on necessity, the committee opined that ‘Article XI is a threshold requirement: if it applies, the substantive obligations under the Treaty do not apply. By contrast, Article 25 is an excuse which is only relevant once it has been decided that there has otherwise been a breach of those substantive obligations.’1420 ‘[T]he excuse based on customary international law could only be subsidiary to the exclusion based on Article XI’1421. If, in keeping with the ILC, necessity is a secondary legal rule, ‘the Tribunal would have been under an obligation to consider first whether there had been any breach of the BIT

1414 ILC (2001), op cit., General commentary, para. 1. See also Total Decision on Liability, op cit., para. 221. 1415 ILC (2001), op cit., General commentary, para. 1; Crawford, J. (2002), op cit., p. 15-16. 1416 ILC (2001), op cit., General commentary, para. 1; see also International Law Commission (1972), Report of the Commission to the General Assembly, YBILC 1970, vol. II. A/CN.4/SER.A/1970/Add.l, NY: UN, p. 306, para. 66(c). 1417 ILC (2001), op cit., General commentary, paras 1-4, also Commentary on Article 25, para. 21. See further Ago, R. (1971), op cit., paras 6 et seq. 1418 Crawford, J. (2002), op cit., p. 16; Binder, C. (2009), op cit., p. 625. See also Total Decision on Liability, op cit., para. 221; ILC (1972), op cit., p. 306, para. 66(c). Cf. Ago, R. (1976), Cinquième rapport sur la responsabilité des États – Le fait internationalement illicite de l’Etat, source de responsabilité internationale (suite), A/CN.4/291 and Add.l and 2, ACDI II (1), para. 138, ft. 249, including citations. 1419 CMS Annulment, op cit., paras 132, 134. 1420 Ibid., para. 129 (et seq.). 1421 Ibid., para. 132 (emphasis added).

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and whether such a breach was excluded by Article XI. Only if it concluded that there was conduct not in conformity with the Treaty would it have had to consider whether Argentina’s responsibility could be precluded in whole or in part under customary international law’1422. On the other hand, the CMS Committee also addressed the necessity defence as a question of wrongfulness1423. Disregarding in essence the taxonomy of primary and secondary rules, it concluded that Article XI US-Argentina BIT and Article 25 ILC Articles have a relationship of lex specialis to lex generalis and, accordingly, Article XI would be applicable as the lex specialis1424. The lex specialis principle, similarly contained in the ILC Articles1425, serves to emphasise the Articles’ ‘residual’ function1426. However, it is generally construed to involve rules that belong to the same hierarchical order, rather than become relevant where primary and secondary rules compete for application1427. Certainly, if one accepts the distinction of primary and secondary rules, there is no room for a veritable conflict, since for so long as the primary rules apply the secondary rules do not enter the picture1428. This lex specialis interpretation has also been adopted in more recent awards that tend to eschew the primary and secondary rules’ nomenclature1429, sometimes closely echoing the reasoning of the CMS Committee and indirectly endorsing its position on necessity as a question of wrongfulness1430 and therefore as justification. Beyond the apparent competition between primary-secondary rules and leges speciales-leges generales, what belongs to the rubric of responsibility

1422 1423 1424 1425 1426 1427 1428 1429 1430

Ibid., para. 134; cf. para. 133. Ibid., paras 132-133. Ibid., para. 133. Article 55 ILC Articles. ILC (2001), op cit., Commentary on Article 55, para. 2; see also Crawford, J. (1998), op cit., para. 17. Contrast Alvarez, J. E. and Khamsi, K. (2009), op cit., p. 427-440. E.g. see Binder, C. (2009), op cit., p. 620. For some early considerations on the topic preceding the adoption of the 2001 ILC Articles, see Crawford, J. (1998), op cit., p. 7. Cf. Sloane, R. D. (2012), op cit., p. 449, 481, 493. E.g. see El Paso Award, op cit., Enron Annulment, op cit., Sempra Annulment, op cit. (in the case of the latter, compare para. 115 with para. 189). Sempra Annulment, op cit., para. 200.

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and what to that of wrongfulness is not axiomatic1431. Even the ILC Articles do not establish a perfect distinction between exoneration of a state from its responsibility for wrongful conduct and preclusion of wrongfulness1432; a fact possibly reflected in that the ILC Articles remain agnostic with regard to compensation (below)1433. In legal scholarship, it remains equally unclear whether the scales are tipped in favour of an interpretation of the ILC defences as a justification or excuse1434, and some authors recommend a different interpretation depending on the circumstance precluding wrongfulness1435. It has also been remarked that it would have been preferable to describe the state conduct as ‘wrongful but excused’1436 or to talk of ‘circumstances precluding or mitigating responsibility’1437. In closing this discussion, it is observed that the legal nature of the ILC defences and their role as an excuse or justification for non-performance remain disputed. Nonetheless, whether a circumstance precluding wrong-

1431 E.g. see Sloane, R. D. (2012), op cit., p. 472-473, 483-486; Heathcote, S. (2007), op cit., p. 87-89; Christakis, T. (2007), op cit., p. 45 et seq. See further Roberts, A. (2008), Legality vs Legitimacy: Can Uses of Force be Illegal but Justified? in Alston, P. and Macdonald, E. (eds), Human Rights, Intervention, and the Use of Force, NY: OUP, p. 191 et seq., esp. ft. 75 on necessity in domestic jurisdictions as justification or excuse. 1432 E.g. see ILC (2001), op cit., Chapter V, Commentary, paras 2, 4, 7, 8, Commentary on Article 24, para. 5, 6, Commentary on Article 25, paras 2, 12. See also Crawford, J. (1999a), op cit., paras 223, 353; Crawford, J. (1999b), Revising the Draft Articles on State Responsibility, EJIL 10 (2), p. 443-444; Lowe, V. (1999), Precluding Wrongfulness or Responsibility: A Plea for Excuses, EJIL 10 (2), in general and especially p. 406; Sloane, R. D. (2012), op cit., p. 472-473, 482-484; generally, Christakis, T. (2008), Les « circonstances excluant l’illicéité » : Une illusion optique? Droit du pouvoir, pouvoir du droit : Mélanges offerts à Jean Salmon, Brussels: Bruylant; Johnstone, I. (2005), op cit., p. 352-354; Szurek, S. (2010c), The Notion of Circumstances Precluding Wrongfulness, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP, p. 432-437. 1433 See below, Compensation. See also Szurek, S. (2010c), op cit., p. 436; Cf. Christakis, T. (2007), op cit., p. 51-54; Christakis, T. (2008), op cit., p. 235 et seq., 241-243. 1434 E.g. see Markert, L. (2011), op cit., p. 156; Roberts, A. (2008), op cit., p. 194, and cf. Sloane, R. D. (2012), op cit., p. 472-473, 482-486; Johnstone, I. (2005), op cit., p. 339, 354-356, 387; Salmon, J. J. A. (1987), op cit., p. 127, 130. 1435 E.g. Crawford, J. (1999a), op cit., paras 223, 353, Crawford, J. (1999b), op cit., p. 444; Christakis, T. (2007), op cit., p. 46-47; Christakis, T. (2008), op cit., p. 227, 242 et seq. See further Sloane, R. D. (2012), op cit., p. 483. 1436 Lowe, V. (1999), op cit. See also Sloane, R. D. (2012), op cit., p. 473. 1437 Christakis, T. (2007), op cit., p. 45 et seq.

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fulness is described as an excuse or as a justification, and whether one selects to apply the primary and secondary rules dichotomy or the lex specialis principle, it must be emphasised that the treaty under interpretation constitutes ‘first and foremost’ the applicable law1438 and where a treaty exception is found to apply, no responsibility and no wrongfulness arises and recourse to the ILC Articles will be inappropriate. ii. Compensation Early in Chapter II an attempt was made to show the essential role the question of compensation plays in determining the existence of a state’s right to regulate, since where an obligation to compensate subsists there can be no exercise of veritable regulatory discretion1439. In view of this centrality of compensation for the right to regulate, the present section looks at the topic in the narrow context of the ILC Articles’ circumstances precluding wrongfulness. The ILC Articles leave open the question of compensation. Pursuant to Article 27(b) ILC Articles: ‘The invocation of a circumstance precluding wrongfulness in accordance with this chapter is without prejudice to […] the question of compensation for any material loss caused by the act in question.’

The meaning of this provision has been fiercely debated. Although legal scholarship1440 and, as will be discussed, arbitral jurisprudence have sometimes interpreted this clause to impose an obligation to compensate the investor, neither the letter of the provision nor the ILC Commentaries seem to support this view. In the first place, the concept that reparation may be owed where a circumstance precluding wrongfulness arises is ‘a priori logically incompatible with the underlying purpose’ of Chapter V ILC Articles1441. Article 27 itself quite evidently addresses the question of whether compen-

1438 Sempra Annulment, op cit., para. 189. See also Bjorklund, A. K. (2009), op cit., p. 491; Binder, C. (2009), op cit., p. 618; Franke, F. (2011), op cit., p. 149. 1439 Chapter II, The right to regulate: what’s in a name…. 1440 Dolzer, R. and Schreuer, C. (2008), op cit., p.170; see further Sloane, R. D. (2012), op cit., p. 505, 507. 1441 Forteau, M. (2010), Reparation in the Event of a Circumstance Precluding Wrongfulness, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP, p. 887, see further p. 888 et seq.

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sation is payable1442; it contains a ‘without prejudice clause’1443 that constitutes ‘a reservation as to questions of possible compensation’1444. It has further been suggested that it hand over to the state to determine the possibility and amount of compensation due1445. The Delphic ambivalence of this provision seems attributed to what the ILC considers as the questionable appropriateness – given ‘the range of possible situations covered by chapter V’1446 – of deciding in abstracto when compensation is payable1447. And so, unresolved by Article 27 ILC Articles, the question remains whether a state invoking a circumstance precluding wrongfulness would nevertheless be required to make good the material loss that has been sustained1448. In interpreting Article 27 ILC Articles, some tribunals have demonstrated outright disregard for the ILC Commentaries’ affirmation that the provision does not predetermine when there is a duty to compensate. This became palpable with the BG Tribunal’s categorical pronouncement that the host state would remain liable to compensate on the basis of the BIT, even if the plea of necessity under customary international law were to be conceded1449, and even more so with the interpretation of the CMS Tribunal. The latter took the view that, due to the temporary nature of the crisis, compensation would in fact be due to the claimants under Article 27 ILC Articles1450. This position was criticised by the Annulment Committee on grounds of that provision’s irrelevance, since the ILC Articles did not apply1451. In particular, the CMS Committee observed that the tribunal applied

1442 ILC (2001), op cit., Commentary on Article 27, para. 4. This comment was echoed in the CMS Annulment, op cit., para. 147. 1443 ILC (2001), op cit., Commentary on Article 27, para. 1. 1444 Ibid., para. 4, also para. 6. 1445 ILC (2001), op cit., Commentary on Article 27, para. 6. See also Gabčíkovo-Nagymaros Project, op cit., para. 48 (‘Hungary [the state invoking necessity] expressly acknowledged that, in any event, such a state of necessity would not exempt it from its duty to compensate its partner.’) Cf. Forteau, M. (2010), op cit., p. 888. 1446 ILC (2001), op cit., Commentary on Article 27, para. 6. 1447 Ibid., paras 1, 6. 1448 Ibid., para. 4. 1449 BG Award, op cit., paras 389, 409 (‘Assuming that necessity were to justify some fair and non-discriminatory measure by Argentina, an obligation to compensate would still obtain by virtue of the BIT’, para. 409. NB the additional ‘fair and nondiscriminatory’ requirement imposed by the tribunal for the function of the customary law defence of necessity.). 1450 CMS Award, op cit., paras 383-394. 1451 CMS Annulment, op cit., paras 144-150.

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Article 27 ILC Articles, when the latter was not applicable for more than one reason: first, the tribunal rejected Argentina’s defence of necessity under Article 25 ILC Articles1452, therefore Article 27 ILC Articles, which describes the consequences of relying on a circumstance precluding wrongfulness, was not applicable and the tribunal’s comments relating to that article were obiter dicta and could have no influence on the operative part of the award1453. Indeed, if a state’s conduct is found to be wrongful under the ILC Articles, it is Article 34 ILC Articles which provides the forms of reparation for the injury sustained. The CMS Committee further noted that for the tribunal to consider the application of Article 27 even in obiter dicta, it should have first considered the question of compensation under the treaty. As long as the specific exception of Article XI US-Argentina BIT applied, it ‘excluded the operation of the substantive provisions of the BIT. That being so, there could be no possibility of compensation being payable during that period.’1454 In sum, the unsettled question of this crucial element of the right to regulate that is compensation induces considerable uncertainty as to whether customary law defences under the ILC Articles, even if upheld, present states with policy space1455. Quite on the contrary, potential compensation in case of a circumstance precluding wrongfulness alerts to the dangers of uncritically accepting the ILC defences as equivalent to an actual right to regulate. The section that follows will scrutinise some remaining issues. 5. ILC defences and the right to regulate. Some further reflections To date, the unsatisfactory manner of application of the defences provided in customary international law as reflected in the ILC Articles does not offer encouragement for basing states’ regulatory discretion solely on their provisions. The issues that have been raised so far notwithstanding, the inadequacy of calling the ILC Articles to the aid of states’ policy space in investment disputes, is exposed in a number of further considerations. In the first place, the appropriateness of relying on the ILC Articles may be questioned. Declaratory of international law, the ILC Articles its mirrored

1452 1453 1454 1455

CMS Award, op cit., para. 331. CMS Annulment, op cit., para. 145. CMS Annulment, op cit., para. 146. See also Chapter II, The right to regulate: what’s in a name….

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image crystallised at the time of ‘codification’, while the law itself may be conceived as leading a parallel existence1456. They are further not all-inclusive: for example, if the rules governing international responsibility of an international organisation are not provided in the ILC Articles1457, such responsibility may subsist through customary international law. More significantly, the ILC Commentaries, but also earlier Ago reports1458, convey the impression that the elaborations that gave birth to the ILC Articles belong to a different context, one which may only imperfectly be applied to investment law1459. The reflection is reinforced by the apparent unsuitability of applying the ILC Articles in the context of the investor-centric system of dispute settlement where a private party takes legal action against a sovereign state1460. Despite a passing mention in the Commentaries showing that the International Law Commission envisaged the ILC Articles’ potential application to obligations owed to individuals1461, the ILC Articles themselves do not ac-

1456 Cf. Caron, D. D. (2002), op cit., p. 873. 1457 These are contained in the Draft Articles on the responsibility of international organizations, adopted by the International Law Commission at its sixty-third session, in 2011, and submitted to the General Assembly (A/66/10, para. 87), YBILC 2011, vol. II, Part Two. See further Article 57 ILC Articles; also Pellet, A. (2010), The Definition of Responsibility in International Law, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP, p. 6-7 and Crawford, J. (2010), The System of International Responsibility, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP, p. 17-18. 1458 E.g. Ago, R. (1980), op cit. 1459 See further on the fact that the ILC Articles are not specifically drafted to serve investment law Bjorklund, A. K. (2011), op cit., p. 401 and Bjorklund, A. K. (2008), op cit., p. 522. See also ILC (2001), op cit., Chapter V, Commentary, para. 2. 1460 See for instance, BG Award, op cit., para. 408 The suitability of applying these ILC Articles to an investor-state relationship is further questioned in Bjorklund, A. K. (2011), op cit., p. 391, 399, 401; Robert-Cuendet, S. (2010), op cit., p. 17; Franke, F. (2011), op cit., p. 131-137. See also Aguirre Luzi, R. (2008), op cit., p. 173 and above, General and Necessity and the criteria for its successful invocation. 1461 ILC (2001), op cit., General Commentary, p. 32, para. 5 (‘[The ILC Articles] apply to the whole field of the international obligations of States, whether the obligation is owed to one or several States, to an individual or group, or to the international community as a whole.’). Cf. Ibid., Commentary on Article 12, para. 6: ‘State responsibility can arise from breaches of bilateral obligations or of obligations owed to some States or to the international community as a whole.’ Cf. Article 33(2) ILC Articles.

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knowledge private investors, only the manner in which a state is beholden to another state1462. Probably until the Argentine cases, the general premise appeared to ignore that the necessity defence, or indeed the other defences encapsulated in the ILC Articles, could be directed at a private investor1463. Although the issue raised here is one of applicability of the ILC Articles rather than applicability of underlying customary international law, curiously, tribunals that adhered so rigidly to the letter of the former largely bypassed this point. The BG Tribunal is an exception to the rule in that in its examination of the necessity defence it noted that ‘Article 25 [ILC Articles] may relate exclusively to international obligations between sovereign States’1464. This led it to conclude summarily that ‘Article 25 would be of little assistance to Argentina as it would not disentitle BG, a private investor, from the right to compensation under the Argentina-U.K. BIT’1465. The interpretation of the BG Tribunal appears all the more congruous when examining some defences included in the ILC Articles, namely consent, countermeasures and self-defence. In the case of consent, the ILC Articles provide expressis verbis that the defence regards consent ‘by a state’ to a given act by another state, thus precluding the wrongfulness of the act ‘in relation to the former State’1466. It is questionable to what extent, if any, this wording may be transposed to investor-state dispute settlement, where a foreign investor has consented to a given government measure. Likewise, an act of a state not in conformity with an international obligation towards another state is not wrongful insofar as it constitutes a countermeasure against that state1467. Lastly, a lawful measure of self-defence involving a

1462 See Crawford, J. (2011), op cit., p. 25; also below. 1463 For example, see Salmon, J. J. A. (1984), op cit., p. 237, see also p. 247; Salmon, J. J. A. (1987), op cit., p.123. See further Barboza, J. (1984), Necessity (Revisited) in International Law, in Makarczyk, J. (ed.), Essays in International Law in Honour of Judge Manfred Lachs – Etudes de droit international en l’honneur du Juge Manfred Lachs, The Hague: Martinus Nijhoff, p. 41. 1464 BG Award, op cit., para. 408, emphasis added. 1465 Ibid., para. 408. It is worth recalling that the BG Tribunal refrained from pronouncing on whether Article 25 ILC Articles was applicable in the case, ibid., paras 407, 412. See also Chapter XI, The protection of essential security interests in the absence of an express treaty-based right to regulate. 1466 Article 20 ILC Articles on State Responsibility (emphasis added). 1467 Article 22 ILC Articles on State Responsibility.

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response to the violation of an international law norm1468 constitutes the basis for the preclusion of wrongfulness if it is taken in conformity with the Charter of the United Nations1469. Again, it is debatable where the private investor stands within this framework1470. Furthermore, ILC comments on Article 27 ILC Articles (discussed earlier1471) makes equally clear that the unresolved question of compensation concerns the existence of an obligation ‘to make good any material loss suffered by any State directly affected’1472. The foregoing discussion seems to buttress the view that the ILC Articles are ill-suited to investor-state arbitration, unless a successful argument of application by analogy may be advanced1473. In effect, it appears that the ILC Articles have been drafted with a modicum of malleability in mind: in its Commentaries, the International Law Commission remarked that ‘the regime of State responsibility for breach of an international obligation’ is ‘flexible in its application’1474. If the ILC Articles are flexible, then the rigid approach to the requirements of the necessity defence adopted in some of the Argentine awards1475 runs against their spirit, since it admits double standards, flexible and inflexible, in the interpretation of the same legal rule. Arguably, despite multifarious indications to the contrary in the letter of the ILC Articles, the defences provided therein should be presumed to be opposable to obligations due to individuals1476. It is further alleged here that

1468 Salmon, J. J. A. (1984), op cit., p. 237. 1469 Article 21 ILC Articles on State Responsibility. 1470 See ILC (2001), op cit., Commentary on Article 21, paras 1 et seq., and especially para. 5 (‘The essential effect of article 21 is to preclude the wrongfulness of conduct of a State acting in self-defence vis-à-vis an attacking State. But there may be effects vis-à-vis third States in certain circumstances.’). 1471 Above, Compensation. 1472 ILC (2001), op cit., Commentary on Article 27, para. 4. The emphasis is added. See also ibid., para 6: ‘It will be for the State invoking a circumstance precluding wrongfulness to agree with any affected States on the possibility and extent of compensation payable in a given case’ (emphasis added). 1473 E.g. on the basis of Article 33(2) ILC Articles. See also Crawford, J. (2011), op cit., p. 25. 1474 ILC (2001), op cit., Commentary on Article 12, para. 6. The circumstances precluding wrongfulness belong to Part One. 1475 See above, Necessity and the criteria for its successful invocation. 1476 The same conclusion but on different grounds is claimed in Franke, F. (2011), op cit., p. 137.

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fettering the state’s right to invoke customary law defences to scenarios where the obligation is due to another state entity but refusing the same defences where the state is obligated to a private investor would conduce to a paradoxical situation where a privately-owned international right (investment protection) would be valued higher than a publicly-owned one (right of another state qua state under general international law). Therefore, extension of the ILC Articles’ defences to obligations assumed towards private investors is necessary, with a view to eluding the preposterous effect that would otherwise obtain. At the same time, preclusion of wrongfulness under the ILC Articles is not to be assimilated with action in accordance with the state’s international obligations nor does it entail a termination of the latter1477. A circumstance precluding wrongfulness affords ‘a justification or excuse for non-performance’ for so long as it subsists but as soon as the circumstance lapses, the obligation is in full force again1478. This emanates clearly from Article 27(a) ILC Articles which provides that invocation of a circumstance precluding wrongfulness is without prejudice to the need to comply with the obligation ‘if and to the extent that the circumstance precluding wrongfulness no longer exists’. In the words of the ICJ in its Gabčíkovo-Nagymaros Project Judgment: ‘even if a state of necessity is found to exist, it is not a ground for the termination of a treaty. […] the Treaty may be ineffective as long as the condition of necessity continues to exist; it may in fact be dormant, but – unless the parties by mutual agreement terminate the Treaty – it continues to exist. As soon as the state of necessity ceases to exist, the duty to comply with treaty obligations revives.’1479

It is no wonder that wrongfulness is easy to establish in cases where nonperformance of an obligation continues after the circumstance has ceased to exist1480.

1477 Gabčíkovo-Nagymaros Project, op cit., para. 48; see also ILC (2001), op cit., Chapter V, Commentary, para. 2. 1478 ILC (2001), op cit., Chapter V, Commentary, para. 2; Sloane, R. D. (2012), op cit., p. 486; Forteau, M. (2010), op cit., p. 887. See further Bjorklund, A. K. (2011), op cit., p. 396-398. 1479 Gabčíkovo-Nagymaros Project, op cit., para. 101. 1480 E.g. LG&E Decision on Liability, op cit., paras 226 et seq. and paras 245 et seq., although, despite the necessity phraseology, this award relies on Article XI USArgentina BIT and not Article 25 ILC Articles.

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X. The right to regulate beyond IIAs in general international law

In the light of the so far discussion, notwithstanding the necessity defence is situated at the epicentre of the debate surrounding the Argentine crisis awards, the ILC Articles seem to have only a peripheral role to play in the preservation of policy space. Although it is not impossible to envisage situations that render the ILC defences relevant to investment disputes, in practice their occurrence seems limited. The following sections will consider what defences customary law has to concede beyond the ILC Articles. B. Ius cogens Rules of ius cogens, or imperative norms of general international law, ‘accepted and recognized by the international community of States as a whole1481 as [norms] from which no derogation is permitted’1482 may offer states regulatory space or, conversely, constrain their ability to invoke ILC Articles’ defences1483. However, it is argued that the impact of ius cogens on the right to regulate is only incidental, its purpose having no bearing on state regulatory freedom. Obligations arising out of peremptory norms prevail over other obligations of a non-mandatory nature1484 and create compelling interpretative principles1485. On this basis, it is appropriate to conclude that where a state relies on such a norm to digress from its investment obligations, there is a strong presumption that the digression will not engage its international responsibility, nor will it incur a duty to compensate1486. It is noteworthy that

1481 However, the concept of ius cogens is not universally accepted. France voted against the adoption of the VCLT on the basis of its critique against ius cogens. See Decaux, E. (2010), op cit., para. 36; also Salmon, J. J. A. (1987), op cit., p. 148. 1482 Article 53 VCLT. See further on ius cogens Article 64 VCLT. 1483 Above, Necessity and the criteria for its successful invocation. See also generally Ménard, M. (2010), Circumstances Precluding Wrongfulness in the ILC Articles on State Responsibility: Compliance with Peremptory Norms, in Crawford, J., Pellet, A. and Olleson, S. (eds), The Law of International Responsibility, NY: OUP. 1484 See also ILC (2001), op cit., Commentary on Article 26, para. 3 and Ménard, M. (2010), p. 452. 1485 See ILC (2001), op cit., Commentary on Article 26, para. 3. 1486 See also Markert, L. (2011), op cit, p. 157; UNCTAD (2009b), Selected Developments in IIA Arbitration and Human Rights, UNCTAD/WEB/DIAE/IA/2009/7, IIA Monitor No. 2 (2009), NY & Geneva: UN, p. 13.

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a provisionally-adopted predecessor to Article 26 ILC Articles drafted ius cogens as a circumstance precluding wrongfulness1487. However, it is not clear that peremptory norms are relevant to investor-state disputes1488, on account both of their rarity1489 and of their nature1490. The Piero Foresti case1491 offers an unusual example of how peremptory norms could potentially find their way in investment arbitration, although even there a ius cogens argument did not make part of the tribunal’s award1492. On the other hand, a ius cogens norm functions erga omnes1493 and needs to be complied with at all times1494. As already discussed1495, Article 26 ILC Articles affirms that the wrongfulness of a state act shall not be precluded if this act is ‘not in conformity with an obligation arising under a peremptory norm of general international law’. Given the hierarchical prevalence of ius

1487 Article 21 Draft Articles Povisionally Adopted by the Drafting Committee on Second Reading, International Law Commission (2000), YBILC II, Part Two, A/ CN.4/SER.A/2000/Add.1 (Part 2)/Rev. 1, p. 67. See further Ménard, M. (2010), op cit., p. 450-451. 1488 Brower, C. H., II (2009), op cit., p. 372; Markert, L. (2011), op cit, p. 157; UNCTAD (2009b), op cit., p. 13. 1489 ILC (2001), op cit., Commentary on Article 26, para. 5. See further Brower, C. H., II (2009), op cit., p. 369, ft. 110, also p. 372. 1490 See also Brower, C. H., II (2009), op cit., p. 372, also p. 369, ft. 110; Markert, L. (2011), op cit, p. 157. For some examples, see further ILC (2001), op cit., Commentary on Article 26, para. 5. Decaux, E. (2010), op cit., para. 41. 1491 Op cit. 1492 See Piero Foresti and others v. South Africa, ICSID Case No. ARB(AF)/07/1, Award, 4 August 2010. See also Markert, L. (2011), op cit, p. 157. 1493 Decaux, E. (2010), op cit., para. 60; Posner, E. A. (2008), Erga Omnes Norms, Institutionalization, and Constitutionalism in International Law, U of Chicago, John M. Olin Program in Law and Economics Working Paper No. 419 and Public Law and Legal Theory Working Paper No. 224, p. 13. Cf. Tams, C. and Tams, C. and Asteriti, A. (2013), Erga Omnes, Jus Cogens, and Their Impact on the Law of Responsibility, in Evans, M. and Koutrakos, P., (eds), The International Responsibility of the European Union, Hart. 1494 Article 53 VCLT. See also ILC (2001), op cit., Commentary on Article 26, para. 6; Posner, E. A. (2008), op cit., p. 13; Linderfalk, U. (2009), Normative Conflict and the Fuzziness of the International ius cogens Regime, Heidelberg J Int’l L 69, p. 977; Ménard, M. (2010), op cit., 452. 1495 Chapter X, Necessity and the criteria for its successful invocation (Compliance with peremptory norms).

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cogens1496, it is unlikely that even outside the context of the ILC Articles a state may claim a right to regulate where state action is in contravention of a mandatory norm. C. The clausula rebus sic stantibus and bribery General international law may accord states some further defences targeting narrowly-defined situations. One such defence exists in the form of the clausula rebus sic stantibus, embedded in Article 62 VCLT on Fundamental change of circumstances. The clausula applies where a situation has undergone such essential and unforeseen alteration that termination of a treaty or withdrawal from it are permitted1497. Like Article 25 ILC Articles, Article 62(1) VCLT adopts a negative formulation: the principle may not be invoked ‘unless’ certain conditions are satisfied, while the second paragraph of the same article restricts the clausula by introducing grounds that preclude its invocation1498. Another defence that may be plausibly invoked by a state in breach of its international obligations is that of corruption or other illegality of investment1499. Corruption in particular is envisaged by the Vienna Convention on the Law of Treaties as a ground potentially invalidating state consent to be

1496 See Article 53 VCLT and Article 64 VCLT; Tams, C. and Asteriti, A. (2013), op cit.; Linderfalk, U. (2009), op cit., p. 977; Ménard, M. (2010), op cit., 449, 452. Cf. Virally, M. (1966), Réflexions sur le « jus cogens », AFDI 12, p. 18. 1497 See Article 62 VCLT. 1498 On the clausula rebus sic stantibus, see generally Vagts, D. F. (2004-2005), Rebus Revisited: Changed Circumstances in Treaty Law, CJTL 43 (2); Klabbers, J. (1999), Clinching the concept of sovereignty: Wimbledon redux, Austrian Rev Int’l & Eur L 3 (3); Rose-Ackerman, S. and Billa, B. (2008), op cit., p. 443-444; Lauterpacht, H. (1933)., op cit., p. 270 et seq. 1499 For bibliography on investment illegality, see Chapter II, Limiting the scope of investment protection. On corruption, see Martinez, A. (2010), op cit., p. 327-331; Kulick, A. (2012), op cit., p. 307-341; Yackee, J. W. (2012), Investment Treaties and Investor Corruption: An Emerging Defense for Host States? Va J Int’l L 52 (3); Lim, K. (2013), Upholding Corrupt Investors’ Claims against Complicit or Compliant Host States – Where Angels Should Not Fear to Tread, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2011-2012. NY: OUP; Titi, C. (2014b), International Investment Law and Good Governance, in Bungenberg, M., Griebel, J., Hobe, S. and Reinisch, A. (eds), International Investment Law: A Handbook. Beck/Hart/Nomos (forthcoming).

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D. Concluding remarks

bound by a treaty1500 and it forms the core of legal instruments such as, most prominently, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions1501. Invocation of bribery as a defence does not rely on the illegality of the investment per se but on an understanding that it contravenes international public policy (ordre public international)1502. It is for the same reason that the state may invoke the defence in spite of its collusion in the illegality by accepting, through its representative, the bribe1503. It is doubtful, however, that either of the two defences discussed here significantly affects the right to regulate. D. Concluding remarks This chapter considered the customary international law defences under the ILC Articles, with a particular focus on the necessity defence and the criteria for its successful invocation. It found necessity to be practically unavailable in the majority of cases and observed the absence of a national security defence telle quelle in customary international law. Other potential players among the ILC defences, namely force majeure and distress, have an even more limited role to play. Enquiring into the legal nature and effects of upholding a circumstance precluding wrongfulness, the analysis revealed that, on the rare occasions where such a defence is conceded, the dilemma of its function as an excuse or justification and the question of eventual compensation remain open. The latter especially has a particular significance in determining whether the ILC Articles offer states a right to regulate at all. The questionable suitability of applying the ILC Articles to investor-state dis1500 Article 50 VCLT (Corruption of a representative of a State) states: ‘If the expression of a State’s consent to be bound by a treaty has been procured through the corruption of its representative directly or indirectly by another negotiating State, the State may invoke such corruption as invalidating its consent to be bound by the treaty.’. 1501 OECD (2011c), OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and Related Documents, Paris: OECD. See further http://www.oecd.org/document/ 21/0,3746,en_2649_34859_2017813_1_1_1_1,00.html. 1502 See World Duty Free Award, op cit., paras 157, 179, 181, 188(3). For a relevant criticism, see Kulick, A. (2012), op cit., p. 317 et seq., especially p. 320-321, also 336-337 and Lim, K. (2013), op cit., p. 609 et seq. and especially p. 619 et seq. See also Chapter V, Public order (ordre public). 1503 E.g. see World Duty Free Award, op cit., para. 181.

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putes was dwelled upon next, and it was noted that ultimately they play a marginal role, generally remaining in the sidelines. Other international law defences beyond the ILC Articles, notably, ius cogens, the clausula rebus sic standibus and bribery, likewise do not appear to add considerably to host state regulatory freedom. On the basis of the foregoing discussion it does not appear that general international law provides a right to regulate in abstracto.

274

XI. Arbitral jurisprudence on the right to regulate (beyond IIAs and general international law) and the question of an implicit right to regulate

A. General observations Under the status quo, substantive IIA provisions and customary international law allow host states to exercise their right to regulate to a certain – if inadequate – extent1504, reinforced by the attitude of deferent tribunals that lend an ear to legitimate public policy considerations. This observation has led to the suggestion that, even in the absence of regulatory exceptions in IIAs, arbitral tribunals have recognised sua sponte the right of a state to regulate in pursuit of public policy objectives1505. Since the right to regulate under IIAs and under general international law has been examined, the present chapter will turn its attention to arbitral jurisprudence in the absence of an ‘express’ right to regulate – whether treatyor general international law-based. In particular, the analysis will attempt to address the question of whether there exists an implicit right to regulate. It will do so by means of two tests: first, it will enquire into whether and to what extent arbitral jurisprudence to date has accommodated state regulatory freedom in the absence of an ‘express’ right to regulate (examination by standard of treatment, with a focus on FET and expropriation); secondly, it will discuss arbitral jurisprudence on a specific regulatory interest, essential security, and the extent to which this interest is taken into account absent an express right to regulate (examination by type of regulatory interest). On the basis of this discourse, the latter part of the chapter will consider the need for explicit exceptions for the preservation of policy space and whether these may impair regulatory freedom. It is beyond the scope of the present analysis to look at a general balancing test that tribunals may adopt, for instance when examining the fair and equi-

1504 See, generally, Chapters VII, IX and X. See also Markert, L. (2011), op cit., p. 151, 157. 1505 Newcombe, A. (2011), op cit., p. 357; Alvarez, J. E. (2011a), op cit., p. 221-222, 322 et seq.; see further Yannaca-Small, K. (2008b), op cit., p. 126-127 and Crawford, J. (2011), op cit., p. 27.

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table treatment1506. Similarly, another ‘balancing’ tool, the ‘in like circumstances’ formula attached to the national and most-favoured-nation treatment standards, examined earlier in the book1507, will not be revisited here. B. Arbitral jurisprudence and the legitimate interests of the host state (examination by standard) Does then the contention hold that in the absence of a concrete right to regulate arbitral tribunals may accommodate host state regulatory freedom, thereby rendering explicit exceptions superfluous? Leaving aside the intractable question of the appropriateness of placing the burden of filling in treaty lacunae on arbitral tribunals, to all intents and purposes requiring them to create the law1508, recent arbitral jurisprudence has tentatively started to reference the state’s regulatory interests, even when the latter are not encapsulated in black and white treaty language or in confirmed general international law. As just mentioned, this has created an expectation in some quarters that tribunals will take into account a state’s legitimate right to regulate1509. However, the reality on the ground may be somewhat different. The ensuing discourse reflects on the sole two standards in whose operation regulatory interests have been acknowledged: the fair and equitable treatment and expropriation. The mutually antagonistic doctrines of state police powers and the sole effect form the crux of the analysis in respect of the latter. A final section provides some concluding remarks. 1. The fair and equitable treatment It is a truism that the legitimate interests of the host state are more likely to be taken into account when the tribunal reviews the fair and equitable treatment, conceivably because, as previously examined, the FET standard by its

1506 See Chapter VII, The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security. 1507 Chapter VII, The right to regulate and the ‘in like circumstances’ formula. 1508 Kalderimis, D. (2010), op cit., p. 1, 3-4, 10, 14-15; Titi, C. (2013a), op cit., p. 831 et seq. 1509 Above, General observations.

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B. Arbitral jurisprudence and the legitimate interests of the host state

very nature requires a balancing of interests and an interpretation that completely ignores the legitimate interests of a host state will hardly appear to be fair and equitable1510. The discussion that follows queries into arbitral jurisprudence on the fair and equitable treatment that has manifested in its reasoning – if not necessarily in its findings1511 – some degree of deference to the state’s regulatory interests. To commence with the 2000 S.D. Myers Partial Award, in interpreting Article 1105(1) NAFTA on the minimum standard of treatment, including the fair and equitable treatment, the tribunal acknowledged not having ‘an open-ended mandate to second-guess government decision-making’1512 and evoked the ‘high measure of deference that international law generally extends to the right of domestic authorities to regulate matters within their own borders’1513. Six years later, the Saluka Tribunal, convened to adjudicate a dispute arising out of the reform and privatisation of the Czech banking sector as it had existed under the former centralised banking system of the Communist era, expressly recognised the host state’s ‘legitimate’ right to regulate1514. First, examining the object and purpose of the treaty as expressed in its title and preamble, the tribunal called for ‘a balanced approach to the interpretation of the Treaty’s substantive provisions for the protection of investments, since an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host States from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations’1515. Then, the tribunal posited that ‘[n]o investor may reasonably expect that the circumstances prevailing at the time the investment is made remain totally unchanged. In order to determine whether frustration of the foreign investor’s expectations was justified and reasonable, the host State’s legitimate right subsequently to regulate domestic matters in the public interest must be taken into consideration as well.’1516 Accordingly, the tribunal was required to weigh ‘the

1510 Chapter VII, The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security. 1511 See below, Concluding remarks. 1512 S.D. Myers Partial Award, op cit., para. 261. 1513 Ibid., para. 263. 1514 Saluka Partial Award, op cit., para. 305, see also para. 309. 1515 Ibid., para. 300. 1516 Ibid., para. 305 (emphasis added).

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Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s legitimate regulatory interests on the other’1517. Some of these statements were rehearsed by the BG Tribunal, which established that ‘in order to adapt to changing economic, political and legal circumstances the State’s regulatory power still remains in place’, before citing ‘the host State’s legitimate right […] to regulate’ directly out of the Saluka Partial Award1518. In a similar vein, the AWG Tribunal recognised Argentina’s ‘reasonable right to regulate’1519 and held that, in interpreting the meaning of fair and equitable treatment, ‘the Tribunal must balance the legitimate and reasonable expectations of the Claimants with Argentina’s right to regulate the provision of a vital public service’1520. In casu, this suggested that ‘the legitimate and reasonable expectations of the investors […] must have included the expectation that the Argentine government would exercise its legitimate regulatory interests with respect to the [Concession at issue] throughout the period of thirty years and in response to unpredictable circumstances that might arise during that time’1521. In examining the investor’s legitimate expectations in the context of ‘equitable and reasonable treatment’1522, the Parkerings-Compagniet Tribunal conceded that ‘[i]t is each State’s undeniable right and privilege to exercise its sovereign legislative power. A State has the right to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilisation clause1523 or otherwise, there is nothing objec-

1517 1518 1519 1520 1521 1522

Ibid., para. 306, see further para. 309. BG Award, op cit., para. 298. AWG Decision on Liability, op cit., para. 236. Ibid., para. 236, emphasis added. Ibid., para. 236. In Article III Lithuania-Norway BIT (1992). The Parkerings-Compagniet Tribunal determined this to be identical to the fair and equitable treatment, ParkeringsCompagniet Award, op cit., para. 278. 1523 On stabilisation clauses, see Weil, P. (1974), Les clauses de stabilisation ou d’intangibilité insérées dans les accords de développement économique, Mélanges offerts à Charles Rousseau – La communauté internationale, Paris: A. Pedone; Faruque, A. (2006). Validity and Efficacy of Stabilisation Clauses. Journal of International Arbitration 23 (4); Robert-Cuendet, S. (2010), op cit., p. 109 et seq.; Cameron, P. D. (2010), International Energy Investment Law, NY: OUP, p. 68-83; Cameron, P. D. (2013), Reflections on Sovereignty over Natural Resources

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tionable about the amendment brought to the regulatory framework existing at the time an investor made its investment. As a matter of fact, any businessman or investor knows that laws will evolve over time.’1524 More recently, on a related topic, the Total Tribunal looked into the conflict between the legitimate expectations of investors, especially with respect to legal stability, and the legitimate interests of host states. It found that although ‘stability, predictability and consistency’ of the domestic legal framework are important for investors to be able to plan their investment, host states merely by signing an investment treaty do not automatically subject their legal regime to a ‘guarantee of stability’, nor do they ‘thereby relinquish their regulatory powers nor limit their responsibility to amend their legislation in order to adapt it to change and the emerging needs and requests of their people in the normal exercise of their prerogatives and duties. Such limitations upon a government should not lightly be read into a treaty which does not spell them out clearly nor should they be presumed.’ 1525 Another recent case where arbitrators took into account the state’s public interests in scrutinising whether the investor had received fair and equitable treatment is that of the Lemire Tribunal1526. The dispute arose out of the rejection of the investor’s applications for licenses for new radio frequencies in Ukraine’s broadcasting sector. In identifying the object and purpose of the Preamble to the US-Ukraine BIT, the tribunal interpreted the parties’ desire ‘to promote greater economic cooperation between them’ and their recognition that the BIT ‘will stimulate the flow of private capital and the economic development of the Parties’ in the ensuing terms: ‘272. […] The main purpose of the BIT is thus the stimulation of foreign investment and of the accompanying flow of capital. 273. But this main purpose is not sought in the abstract; it is inserted in a wider context, the economic development for both signatory countries. Economic development is an objective which must benefit all, primarily national citizens and national companies, and secondarily foreign investors. Thus, the object and purpose of the Treaty is not to protect foreign investments per se, but as an aid

and the Enforcement of Stabilization Clauses, in Sauvant, K. P. (ed.), YB on Int’l Inv L & Pol 2011-2012, NY: OUP; Titi, C. (2014c), Les clauses de stabilisation dans les contrats d’investissement : une entrave au pouvoir normatif de l’Etat d’accueil ? JDI (forthcoming). 1524 Parkerings-Compagniet Award, op cit., para. 332 (emphasis in original), see further paras. 334, 337-338. 1525 Total Decision on Liability, op cit., paras 114-115, 117. 1526 Lemire Decision on Jurisdiction and Liability, op cit..

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to the development of the domestic economy. And local development requires that the preferential treatment of foreigners be balanced against the legitimate right of Ukraine to pass legislation and adopt measures for the protection of what as a sovereign it perceives to be its public interest.’1527

This is indeed a revolutionary interpretation of nondescript preamble language1528, nonetheless it relies broadly on the letter of the law. If it occasions surprise, this is owing to the fact that arbitral tribunals have not accustomed respondent states to such treatment1529. In examining the alleged violation of the fair and equitable treatment, the Lemire Tribunal elaborated further: ‘285. The evaluation of the State’s action cannot be performed in the abstract and only with a view of [sic] protecting the investor’s rights. The Tribunal must also balance other legally relevant interests, and take into consideration a number of countervailing factors, before it can establish that a violation of the FET standard, which merits compensation, has actually occurred: – the State’s sovereign right to pass legislation and to adopt decisions for the protection of its public interests, especially if they do not provoke a disproportionate impact on foreign investors; – the legitimate expectations of the investor, at the time he made his investment; – the investor’s duty to perform an investigation before effecting the investment; – the investor’s conduct in the host country.’1530

It becomes quite obvious that, in expounding on the standard, the Lemire Tribunal aimed at a balancing of interests. Taking into account the investor’s conduct is a noteworthy aspect of the award and it leads to an observation that incorporating investor obligations, including CSR standards, in an IIA may not be necessary, if tribunals take investor comportment into account.

1527 Ibid., paras 272, 273. 1528 Similar language to the one that triggered the above interpretation is very common. E.g. see respective Preambles to the US Model BIT (2012), US-Argentina BIT (1991), US-Estonia BIT (1994), US-Grenada BIT (1986), US-Mozambique BIT (1998), US-Russia BIT (1992) (not in force), US-Rwanda BIT (2008), US-Senegal BIT (1983), Finnish Model BIT (2002), French Model BIT (2006); see also comparable language in the Preambles to the Canadian (2012), German (2009) and UK (2008) Model BITs. 1529 But see also the Saluka Partial Award cited above. Contrast the different interpretion of the Preamble to the US-Argentina BIT (1991) (which also contains the abovementioned formulation) in the LG&E Decision on Liability, op cit., para. 124, CMS Award, op cit., para. 274, Enron Award, op cit., paras 259 et seq., 331-332, Sempra Award, op cit., paras 373-374. 1530 Lemire Decision on Jurisdiction and Liability, op cit., para. 285.

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But the narrow context in which investor conduct is currently factored in – principally in the sphere of the fair and equitable treatment1531 – does not appear ipso facto to corroborate the above conclusion. After this discussion, the examination turns to arbitral jurisprudence on expropriation in the absence of a concrete right to regulate. A subsequent section will offer some concluding reflections on the treatment of both standards. 2. Expropriation Host state legitimate interests have also figured in some arbitral awards in respect of indirect expropriation, notably on the basis of the doctrine of state police powers, according to which a measure that falls within the state’s police powers does not qualify as indirect expropriation1532. The scope of a state’s police powers is broad enough to encompass the ensemble of sovereign powers that relate to the ordre public and the protection of the general interest, including health, public morality, taxation, and the environment1533. But any mention of the police powers doctrine would be incomplete without reference to another jurisprudential construction, generally chronicled as its direct antithesis1534, the sole effect or sole effects doctrine; according to the latter, an expropriation is determined exclusively on the basis of the effect of the regulatory measure on the investor regardless of

1531 See Chapter VI, Positive language and Chapter VII, The right to regulate and the fair and equitable treatment, the minimum standard of treatment and full protection and security. 1532 For an in-depth analysis of the state’s police powers, see Cuendet, S. (2010), op cit., p. 255-275; see further: Kriebaum, U. (2007), op cit., p. 725-729; Lévesque, C (2003), op cit., p. 67-70; Heiskanen, V. (2003), op cit., p. 177-178; Newcombe, A. (2005), The Boundaries of Regulatory Expropriation in International Law, ICSID Rev 20 (1). 1533 Robert-Cuendet, S. (2010), op cit., p. 256-257. 1534 Heiskanen, V. (2003), op cit., p. 177-178; Brunetti, M. (2003), op cit.; Kriebaum, U. (2007), op cit., p. 724-729; see also Cuendet, S. (2010), op cit.

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state intent relating to the protection of a public interest1535. So, while the police powers doctrine leads to a finding of non-violation of the expropriation standard1536, the sole effect doctrine conduces to the diametrically opposite conclusion, i.e. a finding of violation1537. The present analysis inquires into the extent to which investment jurisprudence on expropriation has been mindful of the legitimate interests of the host state, focusing on the competition between these two doctrines. Embarking on the exploration with the police powers doctrine, it is noted that already some tribunals have taken into account the purpose of the state measure, without invoking the doctrine. Along these lines, the Methanex Tribunal stated with respect to indirect expropriation that ‘as a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation’1538. Thus reasoning, the award loosely mirrors already-discussed exceptions according to which general measures taken in the public interest shall not constitute indirect

1535 On the sole effect doctrine, see Dolzer, R. (2002), op cit., p. 79 et seq.; Dolzer, R. and Bloch, F. (2003), Indirect Expropriation: Conceptual Realignments? Int’l L FORUM D Int’l 5 (3), p. 158 et seq.; Reinisch, A. (2008b), Expropriation, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds), The Oxford Handbook of International Investment Law, NY: OUP, p. 444 et seq.; Robert-Cuendet, S. (2010), op cit., p. 139 et seq. and passim; Kriebaum, U. (2007), op cit., p. 724-725; Heiskanen, V. (2003), op cit., p. 176; Energy Charter Secretariat (2012), Expropriation Regime under the Energy Charter Treaty, Brussels: Energy Charter Secretariat, p. 12, 36-37, also p. 55; OECD (2004a), op cit., p. 15; See further Newcombe, A. (2005), op cit., and Nouvel, Y. (2002), op cit. 1536 See Emanuel Too v. Greater Modesto Insurance Associates and the United States of America, Case no. 880, Award, 29 December 1989, 23 Iran-US Claims Tribunal Reports 378 (1991) (hereinafter Too v. Greater Modesto), incl. para. 26. 1537 See Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000. See also Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran et al., Case no. 7, Award 141-7-2, 22 June 1984, 6 IRAN-US Claims Tribunal Reports 219 (1984), p. 25-226; Phelps Dodge Corp v. Iran, Award No 217-99-2, 19 March 1986, 10 Iran-US Claims Tribunal Reports 121 (1986), p. 130; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentina, ICSID Case No. ARB/97/3, Award, 20 August 2007, para. 7.5.20. Cf. Robert-Cuendet, S. (2010), op cit., p. 178. 1538 Methanex Final Award, op cit., Part IV – Chapter D, para. 7.

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expropriation1539, despite the absence of any relevant wording in the NAFTA, the treaty under interpretation in casu. In a similar fashion, the S.D. Myers Tribunal observed that ‘[t]he general body of precedent usually does not treat regulatory action as amounting to expropriation. Regulatory conduct by public authorities is unlikely to be the subject of legitimate complaint under Article 1110 of the NAFTA [Expropriation and Compensation]’1540. A further illustration comes from the Feldman Tribunal which commented that ‘governments must be free to act in the broader public interest […]. Reasonable governmental regulation […] cannot be achieved if any business that is adversely affected may seek compensation’. The tribunal added that this is also recognised in customary international law1541. Drawing directly from the comments on the Restatement of the Law of Foreign Relations of the United States1542 and the distinction between an indirect expropriation and government regulation, the tribunal cited with added emphasis: ‘A state is not responsible for loss of property or for other economic disadvantage resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind that is commonly accepted as within the police power of states, if it is not discriminatory’1543.

And: ‘The Reporter’s Notes to the Restatement further suggest that “whether an action by the state constitutes a taking and requires compensation under international law, or is a police power regulation or tax that does not give rise to an obligation to compensate even though a foreign national suffers loss as a consequence” must be determined in light of all the circumstances’1544. Therefore, the tribunal pointed out, ‘not all government regulatory activity that makes it difficult or impossible for an investor to carry out a particular business, change in the law or change in the application of existing laws that makes it uneconomical to continue a particular business, is an expropriation […]. Governments, in their exercise of regulatory power, frequently change their laws and regulations in response to changing economic

1539 1540 1541 1542 1543

See Chapter VII, The right to regulate and expropriation in general. S.D. Myers Partial Award, op cit., para. 281. Feldman Award, op cit., para. 103. Restatement of the Law Third, op cit. Feldman Award, op cit., para. 105, citing the Restatement of the Law Third, op cit., § 712, Comment g, p. 201 (emphasis in award). 1544 Feldman Award, op cit., para. 106, citing the Restatement of the Law Third, op cit., § 712, Reporter’s Note 6, p. 211.

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circumstances or changing political, economic or social considerations. Those changes may well make certain activities less profitable or even uneconomic to continue’1545. This part of the tribunal’s reasoning is echoed in the Saluka Partial Award, although there the relevant discussion takes place in the context of the fair and equitable treatment1546. But the Saluka Tribunal pronounced also on the existence of an expropriation. It reasoned that ‘the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are “commonly accepted as within the police power of States” forms part of customary international law today’1547. Likewise, the Chemtura Tribunal held that measures taken by Canada’s Pest Management Regulatory Agency, ‘motivated by the increasing awareness of the dangers presented by lindane for human health and the environment’, were ‘a valid exercise of the State’s police powers and, as a result, [do] not constitute an expropriation’1548. In another case, the Tecmed Tribunal established that ‘[t]he principle that the State’s exercise of its sovereign powers within the framework of its police power may cause economic damage to those subject to its powers as administrator without entitling them to any compensation whatsoever is undisputable. Another undisputed issue is that within the framework or from the viewpoint of the domestic laws of the State, it is only in accordance with domestic laws and before the courts of the State that the determination of whether the exercise of such power is legitimate may take place. And such determination includes that of the limits which, if infringed, would give rise to the obligation to compensate an owner for the violation of its property rights.’1549 At least a couple more awards have recognised the state police powers doctrine1550.

1545 Feldman Award, op cit., para. 112. 1546 Saluka Partial Award, op cit., para. 305. 1547 Saluka Partial Award, op cit., para. 262. See also Heiskanen, V. (2007), The Doctrine of Indirect Expropriation in Light of the Practice of the Iran-United States Claims Tribunal, JWI&T 8 (2), p. 218. See further Article 20(8) COMESA CIA. Cf. Kalderimis, D. (2010), op cit., p. 11 (‘it is far from clear how and in what form [the doctrine of police powers] truly survived BIT codification’). 1548 Chemtura Corporation v. Canada, UNCITRAL, Award, 2 August 2010, para. 266 (footnote omitted). 1549 See Tecmed Award, op cit., para. 119. 1550 See Lauder v. Czech Republic, UNCITRAL, Final Award, 3 September 2001, para. 198 and Too v. Greater Modesto, op cit., para. 26.

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Yet does the more favourable approach that concedes the state’s legitimate interests reflect an acquis to which respondents to investor-state arbitration are accustomed or to which they may legitimately aspire? If the Methanex Tribunal held that non-discriminatory regulation for a public purpose, enacted in accordance with due process, does not constitute expropriation as long as the host state is not beholden to the investor not to undertake such regulation by means of a specific commitment, or the Saluka Tribunal that general regulations within the state police powers do no constitute expropriation (both above), other tribunals had no trouble finding a compensable expropriation. The sole effects doctrine is a staple of this latter strain of arbitral jurisprudence. The Santa Elena Award1551 is worth citing. Although the dispute concerned a direct expropriation for conservation purposes and the issue was not the existence of a requirement to compensate but the amount of such compensation, the award uses the sole effects doctrine. In this sense, its reasoning is also pertinent in the case of an indirect expropriation. The relevant part of the award consists in the following statement: ‘Expropriatory environmental measures – no matter how laudable and beneficial to society as a whole – are, in this respect, similar to any other expropriatory measures that a state may take in order to implement its policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state’s obligation to pay compensation remains.’ 1552

In keeping with the same line, the Tecmed Tribunal, which otherwise accepted that the exercise of sovereign power within the framework of a state’s police powers may cause economic damage to investors without entitling them to compensation (below), asserted that it found: ‘no principle stating that regulatory administrative actions are per se excluded from the scope of the Agreement, even if they are beneficial to society as a whole —such as environmental protection –, particularly if the negative economic impact of such actions on the financial position of the investor is sufficient to neutralize in full the value, or economic or commercial use of its investment without receiving any compensation whatsoever.’1553

Although the Tecmed and Santa Elena Awards predate both the Methanex and the Saluka Awards, tribunals have since then expressed doubts about

1551 Compañia del Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Final Award, 17 February 2000 (hereinafter Santa Elena Final Award). 1552 Santa Elena Final Award, op cit., para. 72. 1553 Tecmed Award, op cit., para. 121.

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the legitimate and serving-a-public-purpose nature of a state measure as the litmus test for whether there has been an expropriation. So, the Spyridon Roussalis Tribunal, which however found no relevant violation of the IIA, noted that ‘in order to determine whether an indirect expropriation has taken place, the determination of the effect of the measure is the key question’1554, whereas the intention of the state in adopting it, while relevant, ‘is not decisive of the question whether there has been an expropriation’1555. The Azurix Tribunal also found insufficient the criterion that bona fide regulation within a state’s police powers does not give rise to liability for economic injury suffered by an investor, declaring that ‘the issue is not so much whether the measure concerned is legitimate and serves a public purpose, but whether it is a measure that, being legitimate and serving a public purpose, should give rise to a compensation claim’1556. Fleshing out this argument further, it noted that: ‘In the exercise of their public policy function, governments take all sorts of measures that may affect the economic value of investments without such measures giving rise to a need to compensate. The tribunal in S.D. Myers found the purpose of a regulatory measure a helpful criterion to distinguish measures for which a State would not be liable: “Parties [to the Bilateral Treaty] are not liable for economic injury that is the consequence of bona fide regulation within the accepted police powers of the State.” This Tribunal finds the criterion insufficient and shares the concern expressed by Judge R. Higgins, who questioned whether the difference between expropriation and regulation based on public purpose was intellectually viable […]’.1557

This critique of the police powers doctrine is that non-compensable regulation cannot be distinguished from compensable indirect expropriation on the sole basis of the presence of a public purpose, since the latter is in any case required for the lawfulness of expropriation1558. The tribunal held that additional elements, notably a proportionality test, would offer useful guidance in settling whether regulatory measures amount to compensable expropriation1559.

1554 1555 1556 1557 1558

Roussalis Award, op cit., para. 328, emphasis added. Ibid., para. 330. Azurix Award, op cit., para. 310. Ibid., para. 310. Higgins’ citation and footnote omitted. Robert-Cuendet, S. (2010), op cit., p. 196 et seq, p. 270-271; Azurix Award, op cit., paras 310-312. 1559 Azurix Award, op cit., paras 311-312.

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Opting for the police powers doctrine or the sole effect doctrine is a matter of tribunal discretion1560, therefore it is not possible to pre-judge which measure will be deemed to constitute permissible non-compensable state regulation and which not, especially given that neither doctrine may be characterised as prevalent1561. Despite the Saluka Tribunal’s confident assertion that the police powers doctrine is embedded in customary law1562, arbitral practice belies its assumption. In the words of that same tribunal: ‘263. [...] international law has yet to identify in a comprehensive and definitive fashion precisely what regulations are considered “permissible” and “commonly accepted” as falling within the police or regulatory power of States and, thus, non-compensable. In other words, it has yet to draw a bright and easily distinguishable line between non-compensable regulations on the one hand and, on the other, measures that have the effect of depriving foreign investors of their investment and are thus unlawful and compensable in international law. 264. It thus inevitably falls to the adjudicator to determine whether particular conduct by a state “crosses the line” that separates valid regulatory activity from expropriation. [...]’1563

Not astonishingly, in another adjudication, the Patrick Mitchell Committee did not consider the tribunal’s adoption of the sole effect doctrine as a ground for annulment. It posited: ‘In any event, regardless of the various positions adopted in legal doctrine and case law on the question of determining whether the effect should be the sole and unique criterion to be used in assessing an indirect expropriation or a measure tantamount to expropriation, or whether the purpose sought by the State is also to be taken into account, it cannot but be found in the case at hand that the Arbitral Tribunal, in apparently opting for the “sole effect” doctrine, was merely exercising its freedom of judgment.’1564

1560 See also Chapter II, Deference afforded at tribunal discretion. 1561 Dolzer, R. (2002), op cit., p. 90. Cf. Dolzer, R. and Bloch, F. (2003), op cit., p. 163; Nouvel, Y. (2002), op cit., p. 101; Newcombe, A. (2005), op cit.; RobertCuendet, S. (2010), op cit., p. 261, but see also p. 265 et seq.; Hamamoto, S. (2013), Requiem for Indirect Expropriation: On the Theoretical and Practical Uselessness of a Contested Concept, Private International Law as Global Governance (PILAGG) e-series http://blogs.sciences-po.fr/pilagg/files/2013/09/PILAGG-e-series-IA-1-Hamamoto1.pdf 1562 Saluka Partial Award, op cit., para. 262, cited above. 1563 Saluka Partial Award, op cit., paras 263-264. 1564 Mr Patrick Mitchell v. Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006 (hereinafter Patrick Mitchell Annulment), para. 54. Emphasis added.

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In light of the foregoing analyses, the section that ensues will now venture some concluding observations. 3. Concluding remarks If it is a truism that some of the above awards introduce the concept of regulatory freedom, one question nonetheless remains: is there sufficient evidence that, in the absence of specific regulatory clauses, tribunals show deference to host state interests? First, mention of legitimate state interests, when occurring, has generally been limited to the examination of the two standards discussed above, namely the fair and equitable treatment and expropriation,1565 while no empirical evidence suggests that the same interests are taken into account when addressing other standards. There further appears to be no automatic presumption in favour of host state interests even when exploring these two standards. To take one illustration, while the Lemire Tribunal’s interpretation of the Preamble to the US-Ukraine BIT allowed for the host state’s legitimate right to regulate to be taken into account, other tribunals have been less inclined to acknowledge the existence of such a right1566. As noted by the Saluka Tribunal, referring to the title and preamble, albeit with some ambiguity, this is a more ‘balanced statement of the Treaty’s aims than is sometimes appreciated’1567. The variety of different conclusions has already been noted in the discussion on expropriation, attested, in particular, by the split between the state police powers and the sole effect doctrine. It is also of interest to note that some of these tribunals have referenced the state’s ‘legitimate’1568 or ‘reasonable’1569 right to regulate, apparently signalling that it is not a full legal right1570. Another no less important aspect to reflect on is whether an interpretation mindful of host state legitimate interests has eventually permitted the tribunal to reject the investor’s claims or whether it has not weighed enough in

1565 1566 1567 1568

But cf. AES Award, op cit., para. 13.3.2 on full protection and security. See above, The fair and equitable treatment. Saluka Partial Award, op cit., para. 300, emphasis added. E.g. Saluka Partial Award, op cit., para. 305, BG Award, op cit., para. 298, Lemire Decision on Jurisdiction and Liability, op cit. paras 272, 273. 1569 AWG Decision on Liability, op cit., para. 236. 1570 On this, see Chapter II, The right to regulate: what’s in a name….

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favour of the host state. It is remarkable that while a number of tribunals have acknowledged the host state’s right to regulate, most have simply paid it lip service, before finding a violation of the standard under scrutiny. So, the S.D. Myers Tribunal after citing the ‘high measure of deference’ afforded states by international law1571 found in favour of the investor1572. The Lemire Tribunal after taking into account the host state’s legitimate interests1573 found a violation of the fair and equitable standard1574. The BG Tribunal after interjecting the Saluka Tribunal’s ‘legitimate right […] to regulate’ concluded that the respondent’s conduct fell below the international minimum standard1575. In the majority of the above-discussed cases, an allusion to legitimate host state regulatory interests notwithstanding, the tribunal has ruled against the state1576. In conclusion, despite the fact that arbitral tribunals have not always been deaf and blind to host states’ legitimate interests, in the absence of an express right to regulate, the wide cast of existing interpretations does not permit the deduction that tribunals accommodate host state policy space. Jurisprudential doctrines at variance with each other appear emblematic of the variety of strains of arbitral decision-making, sometimes impelling an investorfriendly interpretation, sometimes an interpretation favourable to the host state. But we are yet far from witnessing the establishment of a consistent jurisprudence that may be safely relied upon; a view reinforced by the fact that arbitral tribunals have sometimes been reluctant to recognise the state’s regulatory freedom even in the presence of exceptions clauses1577. In the interest of legal certainty, if a state wishes to guarantee that its interests shall be taken into account, for everything that is not covered by customary international law, it needs to consider the incorporation of explicit exceptions.

1571 1572 1573 1574 1575 1576

Above, The fair and equitable treatment. S.D. Myers Partial Award, op cit., para. 268. Above, The fair and equitable treatment. Lemire Decision on Jurisdiction and Liability, op cit., para. 513(3). BG Award, op cit., para. 303. Among the above awards found a violation of the FET or the expropriation standard: BG Award, op cit., para. 303, Lemire Decision on Jurisdiction and Liability, op cit., para. 513(3), S.D. Myers Partial Award, op cit., para. 268, Saluka Partial Award, para. 511(c), Tecmed Award, op cit, para. 201(1), BG Award, op cit., para. 467(3), Total Decision on Liability, op cit., para. 485(a), AWG Decision on Liability, op cit., para. 276(c). 1577 E.g. see CMS Award, op cit., Sempra Award, op cit. and Enron Award, op cit. See also Chapter X, Necessity and the criteria for its successful invocation.

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C. The protection of essential security interests in the absence of an express treaty-based right to regulate So what is the significance of the fact that the 2006 French Model BIT does not include an exception for the protection of France’s essential security interests, or indeed other exceptions for the protection of the environment, public health or the public order? Will an implicit exception be read into it? Or does it mean that the French Government has relinquished its right to regulate in pursuit of such interests? The same questions are naturally raised for other treaties that, like the French Model BIT, do not contain comparable exceptions. This is the case, for instance, of the German and Dutch Model BITs. The following will enquire into the significance of the absence of essential security exceptions in a treaty, essential security constituting a fundamental regulatory interest1578. The limited protection that customary law defences provide in this respect has already been highlighted and that discussion will not be rehearsed here1579. There are two ways to approach the matter. Both may derive from an interpretation on the basis of Article 31 VCLT, the first one by relying predominantly on the ordinary meaning of the words taken in their context and in the light of the treaty’s purpose, and the second one by invoking good faith, also taking into account the context, including potentially other international law applicable in the relations between the parties, and the purpose of treaty. The first approach, and possibly the most congruent one, emanates directly from the wording of the treaty – or, to be more accurate, from the absence of any relevant wording. Where the parties have not agreed on the inclusion of an exception, it will be assumed that essential security concerns, if or when arising, need to be addressed through means that do not run afoul of the treaty1580. The parties are not prevented from regulating aspects of foreign investment in the interest of national security, but such regulation must be compatible with the obligations that bind them under the IIA1581. This doctrinal approach is also the one adopted by arbitral tribunals. A case in point is the AWG Decision on Liability which refused to read exceptions

1578 See also Chapter V, Essential security interests. 1579 See generally Chapter X and, in particular, ibid., Does customary international law provide a national security defence? 1580 UNCTAD (2009a), op cit., p. 119. 1581 UNCTAD (2009a), op cit., p. 119-120.

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into BITs that did not contain them. After noting the lack of a ‘non-precluded measures’ clause in the three BITs applicable to the adjudication, the tribunal stated: ‘Argentina and the amicus curiae submissions received by the Tribunal suggest that Argentina’s human rights obligations to assure its population the right to water somehow trumps its obligations under the BITs and that the existence of the human right to water also implicitly gives Argentina the authority to take actions in disregard of its BIT obligations. The Tribunal does not find a basis for such a conclusion either in the BITs or international law. Argentina is subject to both international obligations, i.e. human rights and treaty obligation[s], and must respect both of them equally.’1582

The AWG Tribunal refused a second time to read a non-extant exception into the BITs. Although this reasoning comes from a different context, that of a compensation for losses clause, the tribunal’s positivist insistence on respecting the letter of the law is significant for future treaty drafting. It observed: ‘Had the Contracting Parties, after carefully negotiating a complex set of legal obligations to protect and promote investments, intended that such obligations would not apply in times of war, civil disturbance, or national emergency, they certainly would have so stated specifically. Indeed, in many other BITs, contracting parties have included exception provisions to provide for limited exemptions from BIT obligations in particular situations. The Contracting Parties of the BITs in question in these cases could also have done so if they had wished, but they did not.’1583

Another example worth looking into is that of the BG Tribunal1584. Likewise adjudicating in the absence of an essential security interests exception in the UK-Argentina BIT, the BG Tribunal found no basis in the treaty for reading into it the exception of Article XI US-Argentina BIT1585. But the tribunal also went a step further. As was appropriate, in the absence of a treaty-based defence, it then turned to customary international law1586, but here again it rejected the applicability of the necessity defence. It determined that the plea of necessity under Article 25 ILC Articles would be unavailable to Argentina, whether the tribunal accepted or whether it rejected applicability of that

1582 1583 1584 1585 1586

AWG Decision on Liability, op cit., para. 262, emphasis in original. Ibid. para. 270. BG Award, op cit. Ibid., para. 386-387. Ibid., para. 388 et seq.

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provision1587. If it rejected it, invocation of the defence would be immediately dismissed1588. If it accepted it, the tribunal still considered that, since reliance on necessity as a defence must not be precluded by the international obligation at hand, Argentina’s argument fails1589. Although the tribunal did not articulate the reasoning that led it to this conclusion, it seems to stem from a finding that the lack of an explicit security exception in the UKArgentina BIT implicitly precludes the invocation of necessity1590. In other words, the tribunal used the lack of an explicit exception in the treaty as a means to not only refuse to create one out of thin air but also to deny applicability of customary international law and its defences. This is a problematic interpretation with potentially far-reaching ramifications for the majority of investment agreements that do not explicitly contain a right to regulate. The second approach to solving the abovementioned dilemma would rely predominantly on an interpretation in good faith1591 in order to recognise an implicit right to regulate for the protection of a state’s essential security interests1592. It could appropriate arguments that have been deployed by tribunals that took into account the state’s legitimate interests in examining the fair and equitable treatment and expropriation to advance an interpretation, bearing on all standards, to the effect that non-discriminatory regulation for the protection of a state’s essential security interests does not amount to a treaty violation1593. The telos of the treaty itself may support both approaches, depending on which aspects the arbitrator selects to focus on1594, however it may play a particular role in this second approach, on account of the absence of concrete treaty language on regulatory freedom, namely an

1587 1588 1589 1590 1591 1592 1593 1594

292

Ibid., paras 407, 412. See ibid., paras 407, 412 and especially para. 408. Ibid., paras 407, 409 et seq. BG Award, op cit., para. 409. See Chapter X, Necessity and the criteria for its successful invocation. Article 31(1) VCLT. Cf. Alvarez, J. E. (2011a), op cit., p. 323-324 but contrast the ultimate statement on p. 324. See generally above, Arbitral jurisprudence and the legitimate interests of the host state (examination by standard). E.g. contrast the interpretation of preamble language, on the one hand in Saluka Partial Award, op cit., para. 300 and Lemire Decision on Jurisdiction and Liability, op cit., para. 273, and, on the other hand, in the LG&E Decision on Liability, op cit., para. 124, CMS Award, op cit., para. 274, Enron Award, op cit., paras 259 et seq., 331-332, Sempra Award, op cit., paras 373-374.

D. Are explicit treaty exceptions necessary to reserve policy space?

exception. For instance, as stated by the Lemire Tribunal, the object and purpose of a treaty may be interpreted as the protection of foreign investment as an aid to the development of the local economy; therefore, a balanced approach is required that takes into account the interests of the foreign investor as it does of the legitimate right of the state to adopt measures for the protection of what it perceives to be in its public interest1595, including, naturally, its essential security interests. Nonetheless, it is unclear that this interpretation, amounting to the recognition of an implicit essential security interests exception, will be accepted in arbitral jurisprudence. To conclude, it is not evident that in the absence of a treaty-based essential security interests exception the state may be allowed to derogate from its conventional obligations without incurring international responsibility. Although the absence of such an exception should not interfere with the possibility of invoking customary law defences1596, some tribunals have used this lack of any relevant wording to deny states even that. It is to be noted that where the essential security interest at stake partakes of a genuinely overriding nature1597, it would be quixotic to imagine that the state shall not give it priority, even if its conduct may not be excused under the treaty, thus entailing a duty to compensate. D. Are explicit treaty exceptions necessary to reserve policy space? So are explicit treaty exceptions necessary to reserve host state policy space, or have arbitral tribunals offered states a satisfactory amount of deference to allow for legitimate regulation in the public interest even in the absence of such provisions? It appears from what has been discussed so far that, when engaging in a balancing of interests in the absence of conventional provisions offering a state its right to regulate, an arbitral tribunal may be assisted in its task by general international law, the presence of a standard deemed to already include balancing tools (e.g. ‘in like circumstances’, ‘legitimate expectations’) or it may simply decide to afford the state an amount of deference out of its own bon plaisir. Among the above options, general international law affords states only a limited – if any – amount of regulatory free-

1595 Lemire Decision on Jurisdiction and Liability, op cit., para. 273. 1596 See Chapter X, Necessity and the criteria for its successful invocation. 1597 See also UNCTAD (2009a), op cit., p. 25.

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dom1598. The ‘balancing tools’ themselves do not present states with additional regulatory flexibility1599. Finally, tribunal deference may be accorded by one tribunal and denied by another, in other words it is a matter for the tribunal’s discretion, and so it may not be safely relied upon by states1600. Accordingly, it seems preferable that, insofar as a state wishes to reserve its right to regulate, it does so explicitly by means of concrete provisions in its IIAs1601. E. Is an explicit treaty-based right to regulate harmful to regulatory freedom? A final matter that compels attention is whether the explicit insertion of a right to regulate may prove deleterious to host state policy space, by acting as an impediment to the recognition of general regulatory freedom. In particular, two observations sound the alarm: first, a doubt is born from the lacuna occasioned when a right to regulate is inserted only in some treaties or in respect of some aspects of investment protection within a given treaty or even in relation to only some public policy interests1602; second, it is submitted that exceptions, namely Article XX GATT-like general exceptions, may receive an overly strict interpretation, ultimately eroding the state’s regulatory freedom1603. The discussion will give a brief consideration to these two concerns. The first issue is reflected in an observation made with reference to the 2004 Canadian Model BIT, that, paradoxically, introducing general exceptions in order to safeguard the host state’s policy space renders problematic 1598 See generally Chapter X. 1599 E.g. see Chapter VII, The right to regulate and the ‘in like circumstances’ formula. See also Chapter VII, The right to regulate and the fair and equitable treatment, the minimum standards of treatment and full protection and security. 1600 See especially Chapter II, Deference afforded at tribunal discretion and Chapter XI, passim. See also Markert, L. (2011), op cit., p. 158. 1601 Cf. Muchlinski, P. (2011), op cit., p. 353, who talks of a ‘balanced approach’ and ‘suitably[-]worded exceptions clause[s] that [leave] little room for doubt as to the legitimacy of certain regulatory actions’. 1602 On this concern, see for example Newcombe, A. (2011), op cit., p. 358 and Newcombe, A. (2007), op cit., p. 401. See further Alvarez, J. E. (2011a), op cit., p. 323-324. 1603 See Newcombe, A. and Paradell, L. (2009), op cit., p. 503; Newcombe, A. (2011), op cit., p. 366, 368; Newcombe, A. (2007), op cit., p. 401.

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E. Is an explicit treaty-based right to regulate harmful to regulatory freedom?

their absence from earlier treaties1604. The argument holds not only for earlier treaties, but equally for all other ‘omissions’1605, as deduced from a simple argumentum a contrario. This absence may, of course, be explained. The preoccupation with vouchsafing regulatory freedom and the introduction of relevant exceptions is a relatively new phenomenon1606 and states are constantly updating their treaty portfolio. But revision of older generation treaties does not take place overnight; it is often the product of painstaking negotiations and compromise between the interests of different parties motivated by diverse intentions. The second consideration takes into account the restrictive approach to the interpretation of general exceptions clauses modelled after Article XX GATT1607. Arguments that have been adduced in this respect are, first, one putative model investment agreement’s non-espousal of general exceptions clauses modelled after Article XX GATT due to a concern that such exceptions may be interpreted too restrictively1608 and, secondly, that the ‘in like circumstances’ test permits a tribunal to balance investor interests against ‘an unlimited list of legitimate government concerns – a list far broader than the exceptions in GATT Article XX’1609. It is clear that these reflections are expressed in the narrow context of general exceptions modelled after Article XX GATT, whose suitability has already been appraised1610, while the purview of the second contention is limited to the contingent standards, and, most crucially, it revolves around the ‘in like circumstances’ test, which, as explained elsewhere1611, constitutes an intrinsic part of the standards and does not offer a right to regulate. Precisely for the reason that it forms part and parcel of the standards of treatment in question, it is not possible to exclude it, nor has there been a question of replacing it with exceptions that

1604 Newcombe, A. (2004), Canada’s New Model Foreign Investment Protection Agreement http://italaw.com/documents/CanadianFIPA.pdf, under heading 3. 1605 E.g. Alvarez, J. E. (2011a), op cit., p. 323-324. 1606 See Chapter I, Introduction and passim. 1607 Cf. Alvarez, J. E. (2011a), op cit., p. 323-324. 1608 Newcombe, A. (2011), op cit., p. 366; Newcombe, A. and Paradell, L. (2009), op cit., p. 503, 505; Cosbey, A. (2005), p. 165; Lévesque, C. (2013), op cit., p. 143. 1609 DiMascio, N. and Pauwelyn, J. (2008), op cit., p. 83 (emphasis in original). See further Newcombe, A. (2007), op cit., p. 401. 1610 See Chapter VII, Relevance of general exceptions clauses modelled after Article XX GATT. 1611 Chapter VII, The right to regulate and the ‘in like circumstances’ formula.

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would render a choice between either the comparator or the exceptions apposite. Of the two issues raised therefore, it is the first one that weighs in the question of whether explicit exceptions may prove injurious to regulatory freedom. Certainly, when an exception is drafted, the hiatus left by the policy areas it leaves uncovered or the absence of other exceptions engages a complex legal problématique. At a bare minimum, some of the pitfalls of unintentionally leaving policy areas and objectives outside the scope of an exception may be avoided where the relevant clause is drafted so as to comprise an open list of interests, such as where these are listed as examples; e.g. ‘nothing in the agreement shall be construed to prevent a party from adopting or enforcing measures necessary, inter alia, for…’ or ‘nothing in the agreement shall be construed to prevent a party from taking any action it considers necessary for the protection of its essential security interests, including…’1612 Yet in any event, since under the status quo state regulatory freedom in the absence of explicit exceptions seems very limited1613, the threat of harming it with the incorporation of an express right to regulate may in fact not be as significant as it may at first appear. F. Concluding remarks Chapter XI has queried into the right to regulate in arbitral jurisprudence beyond explicit treaty language on regulatory interests, especially exceptions, and customary international law defences and has asked the question of whether there exists an implicit right to regulate. It remarked that, while investment tribunals have on occasion factored in host state legitimate interests in the absence of a concrete right to regulate, this approach is confined to the examination of the fair and equitable treatment and expropriation, and it depends on arbitral discretion. Even when a tribunal references the regulatory interests of the host state, it does not necessarily find in the latter’s favour nor does it guarantee a level of ‘deference’ tantamount to that evinced in the presence of a concrete treaty- or customary law-based right to regulate. In other words, no evidence confirms that host states may rely on tribunals

1612 See also Chapter VII, The right to regulate in the respective standards of treatment (General remarks). 1613 See generally this Chapter, and above, Are explicit treaty exceptions necessary to reserve policy space?

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alone for their right to regulate. The discourse further centred on the protection of a seminal regulatory interest, essential security, in the absence of an express IIA-rooted right to regulate and noted that tribunals do not generally concede a right to such protection. In some instances, they have gone so far as to deny even recourse to customary law defences on account of the absence of an explicit essential security interests exception in the treaty. The analysis to this point then has suggested that the existence of an implicit right to regulate is not borne out in practice and explicit treaty exceptions are necessary where states wish to ensure a modicum of policy space. Finally, the chapter assessed whether the inclusion of a treaty-based exception may harm regulatory freedom and, all things considered, it found this concern to be untenable. The inadequate extent to which arbitral tribunals to date have taken into account regulatory interests and the unpredictable and sporadic nature of such deference seem to advocate express treaty-based exceptions.

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The thrust of the debate on the right to regulate is aptly captured in a statement made by John Ruggie in his 2009 Report on human rights and transnational corporations and other business enterprises in his capacity as Special Representative of the UN Secretary-General. Although this statement comes from a perspective external to the stricto sensu investment law context, it is not incompatible with some of the reasoning that has buttressed the foregoing analysis. He observed that: ‘[R]ecent experience suggests that some treaty guarantees and contract provisions may unduly constrain the host Government’s ability to achieve its legitimate policy objectives, including its international human rights obligations. That is because under threat of binding international arbitration, a foreign investor may be able to insulate its business venture from new laws and regulations, or seek compensation from the Government for the cost of compliance.’1614

The book has ventured to depict the right to regulate in international investment law with a view to considering this means available to relieve the tension between the legitimate interests of the host states and the interests of investors in the stability and predictability of the legal climate governing their investment. But in contrast with Ruggie’s approach, in its exploration of the topic, the discourse premised, not that host state ‘legitimate policy objectives’, including human rights obligations, are at stake – indeed this aspect was generally not addressed – but that, from a pure investment law point of view, the absence of the right to regulate may impact negatively on investment protection. Recent goings-on in the aftermath of the Argentine crisis disputes punctuate the disfavour and suspicion with which the system is received in some quarters; withdrawals from the ICSID Convention, denunciation of bilateral investment treaties and the concomitant weakening of protections, although exceptional in character, do not fail to strike at the heart of investment protection and invite a rethinking of older – and probably soon-to-be parochial – treaty formulas. It is in this light that the right to regulate has been reviewed.

1614 Ruggie, J. (2009), op cit., para. 30, footnote omitted.

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Languishing in conspicuous obscurity until recently, in a field strongly focused on investment promotion and protection, generally absent from most international investment law manuals, legal dictionaries and a very considerable number of investment treaties, the right to regulate gradually finds its place in the edifice of international investment law. Described as a legal right that allows derogations from substantive investment protections without incurring a duty to compensate, it is to be distinguished from some collateral concepts, such as limitations on a treaty’s scope by carving business sectors out of its protections, which function in an auxiliary manner but may sometimes enhance policy space to the detriment of investment protection. Given the newness of the topic these issues remain debated. Yet despite its novelty in investment legal discussion, the concept of regulatory flexibility has already existed outside this context, so much in the pre-modern bilateral investment treaty world, namely in friendship, commerce and navigation treaties, as in parallel systems, notably in the WTO, EU law and human rights law. Its presence in these latter systems sometimes raises questions as to the appropriateness of drawing on principles that have been elaborated in their respect to inform IIA interpretation. In investment policymaking, the preoccupation with the right to regulate has been more clearly evidenced in the promulgation of the Canadian and US Model BITs of 2004 as well as in a miscarried attempt to adopt a regulatory space-friendly Norwegian Model BIT in 2007. It is significant to note that the Canadian and especially the much-commented US policy shift took place in response to initiated arbitrations, a move also echoed in Australia’s proposed discontinuance of ISDS. It is the same apprehension described by Ruggie: host states succumb to regulatory chill when they are concerned that their regulatory actions may be challenged and result in sizeable pay-outs in damages. But arbitration is essentially the torch shedding light on an uncomfortable reality on the ground: a systemic imbalance between conflictive interests in old generation treaties, a disequilibrium that the right to regulate is called to redress. It does so precisely by allowing for the protection of some legitimate policy interests, such as essential security interests, including economic security and access to strategic industries – poignant topics in view of financial crises and continuing scepticism towards sovereign wealth funds and other public investors –, international peace and security, and more generally the public interest, to name but a few. Investment treaties endorse these interests when incorporating them in the form of positive language or exceptions. Positive language was addressed as an ancillary means of safeguarding policy space, through guarantees of non-lowering of health, safety, labour 299

VI. Conclusion

and environmental standards, the incorporation of CRS obligations incumbent on investors or general statements in the preamble establishing respect for public interests. It is notable that the 2012 US Model BIT has considerably expanded on positive language compared to its 2004 precursor. The drawback is that positive language has more bark than bite and may sometimes remain a hortatory statement. This becomes quite apparent when one considers the ambivalent function of the ‘declaratory’ right to regulate. In the main, the right to regulate is vouchsafed through IIA exceptions, either affecting the individual standards of treatment or drafted as general regulatory clauses. The formulation and presence of exceptions vary from treaty to treaty as from standard to standard. Accordingly, while exceptions to the fair and equitable treatment are virtually non-existent, possibly because this standard is deemed to comprise a balancing test, exceptions to the contingent standards are considerably more popular (this, despite the fact that they are also construed to comprehend a balancing tool, the ‘in like circumstances’ test). The right to regulate is also acutely-debated in relation to the problématique of how to draw the line between an indirect expropriation and legitimate state regulation. Some especially North American treaties resolve this dilemma by inserting a statement to the effect that nondiscriminatory regulatory measures of general application do not constitute indirect expropriation. Furthermore, particular attention has been given in the book to a class of exceptions rendered famous by their inclusion in the Canadian Model BIT, namely general exceptions modelled after Article XX GATT, which subject state measures to a requirement, inter alia, for nonarbitrary and justifiably discriminatory application, introducing thus a measure of fairness. These clauses appear to address a more general concern with the public interest. Of special significance in the perusal of the right to regulate are some structural elements typically discussed in this context, such as the required nexus between state measures and the policy objectives pursued. In the recent Argentine crisis awards, a considerable part of the doctrinal debate has involved shortcomings in the interpretation of the ‘necessary for’ nexus but also the drafting of self-executing clauses that effectively allow the state to determine the applicability of the exception it invokes. It is these structural elements that indicate the appropriate level of arbitral review of exceptions. As regards self-judging clauses, these do not oust the possibility of a residual good faith review, while in the absence of self-judging language, there is full arbitral control, with the caveat that such control does not entail second-

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guessing policymaking decisions of the host state, particularly where issues of a quasi-constitutional nature come into play. The significance of these observations is felt particularly with reference to some seminal regulatory interests, such as essential state security, the regulatory interest par excellence, where exceptions tend to be couched in self-judging language. Among other interests examined, noteworthy are exceptions for cultural policy. Disagreement on whether to include an exception for culture during the painstaking efforts to reach a multilateral agreement under the aegis of the OECD in 1998 led to the implosion of the negotiations. Reservation of policy space for culture is especially important for France, Canada and the EU and has already acquired prominence in EUIA negotiations. In some quarters, the need to incorporate a right to regulate in investment treaties has been questioned on the contention that either under customary law or through deferent arbitral jurisprudence an (implicit) right to regulate is recognised. Both assumptions have been put to the test. In the first instance, customary international law defences were not found to contribute significantly to host state freedom. There was ample opportunity to demonstrate this in particular with reference to the defence of necessity as embodied in the International Law Commission’s Articles on the Responsibility of States and discussed at length in recent adjudications against Argentina. In some of these disputes, necessity was conflated with the essential security interests exception to the detriment of Argentina’s overall defence. The very restrictive criteria for necessity’s successful invocation render the defence practically unavailable in the majority of cases, and the analysis further refuted the existence of an independent national security exception in customary law. Even were customary law defences to be conceded, a problem is posed by the open question of compensation in respect of the ILC Articles’ circumstances precluding wrongfulness. This unsettled question of whether potential compensation is due to the aggrieved investor creates uncertainty over a crucial element of the right to regulate. Ultimately, general international law does not provide a right to regulate in abstracto. But that much is also true for arbitral jurisprudence on legitimate host state interests beyond explicit treaty language and customary international law defences. While investment tribunals have on occasion factored in host state legitimate interests in the absence of a concrete legal right to regulate, this solicitude is generally confined to the examination of two standards, namely the fair and equitable treatment and expropriation, and relies for its recognition on arbitral discretion. In the context of expropriation already the 301

VI. Conclusion

conflict between the sole effect doctrine and the police powers doctrine demonstrates all too clearly that host states may not rely on tribunals alone for their right to regulate. In short, the existence of an implicit right to regulate is not borne out in practice and the inadequate extent to which arbitral tribunals have taken into account regulatory interests sua sponte to date, as well as the unpredictable nature of such deference, advocate express treatybased exceptions, at least to the extent that contracting parties wish to reserve their policy space. So what future for the right to regulate? Looking beyond the current state of play, it is suggested that the right to regulate will feature more prominently both in future disputes and in future treaties. As regards dispute settlement, first the Argentine awards and their discussion of essential security interests and the necessity defence adverted to questions of the appropriate drafting of exceptions clauses and their relationship to customary international law. Possible future disputes arising out of the Arab spring and the recent financial crisis may keep up the number of arbitrations involving security interests. Legitimate public policy concerns other than security situations are also likely to give rise to frequent claims. The onset the two Vattenfall and the two Philip Morris cases reveals that the rhetoric of confines imposed on the ability of states to engage in legitimate regulation for the protection of public interests, notably the environment and public health, may prove crucial for future cases and engage conflicts that in the past did not appear to arise with the same vehemence. Australia’s public statement on its intention to discontinue investor-state arbitration in future agreements came shortly before – and ostensibly in anticipation of – initiation of the Philip Morris proceedings. At the same time, the first Vattenfall case has been settled out of arbitration1615, indicating Germany’s apparent concern that an arbitral tribunal might not endorse its right to regulate a public interest. More meaningfully, the new landmark negotiations at the regional level that involve as treaty partners the EU, US and/or Canada, including negotiations on the Trans-Pacific Partnership Agreement, manifest a sensibility to the right to regulate. Of course, it is not possible to reflect on them with any finality at this stage, but a lot will depend on the actual outcome of the negotiations, which could prove to be trend-setters. Although these new agreements will not be the last word on regulatory freedom, it is assumed that they will carry their lexicon into future negotiations and agreements,

1615 See Vattenfall I, op cit., Award, 11 March 2011.

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virtually determining the face of tomorrow’s investment law, a prospect especially credible if the new hope for multilateral solutions on the basis of these regional approaches bears out. These goings-on, for better or for worse, impact the system in unprecedented ways and, concurrently, mirror a profound truth about investment law: it is a system in flux, a system that is evolving, and this fact is to be welcomed rather than deplored. Although divining the future requires Pythian foresight that the author does not possess, it is perhaps reasonable to assume that we stand at the threshold of a new generation of investment treaties that will be more balanced and will safeguard a modicum of policy space, thus marking a break with the grand old tradition of assymetric investment protection.

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Bibliography Exposé des motifs accompanying the Bill authorising approval of the 2004 BIT between France and Libya, presented by Michel Barnier in the name of Jean-Pierre Raffarin, in Annexe au procès-verbal de la séance du 15 décembre 2004, N° 123, Sénat, Session ordinaire de 2004-2005 France, Assemblée Nationale – 2e séance du 14 octobre 1998, Compte rendu intégral, p. 6578-6579, Négociations sur l’AMI http://www.assemblee-nationale.fr/11/cri/html/1 9990021.asp#06578 Remarks by President Barack Obama in Meeting with Trans-Pacific Partnership, Honolulu, 12 November 2011 http://www.ustr.gov/about-us/press-office/speeches/transcripts/2010/november/remarks-president-barack-obama-meeting-tran Speech of the Minister of Trade and Industry, Dr Rob Davies, at the Discussion of UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD) in Geneva, Switzerland, 25 September 2012 http://www.thedti.gov.za/editspeeches.jsp? id=2506 News items China-Taiwan Bilateral Investment Protection Agreement: dispute resolution mechanisms exclude international arbitration, Herbert Smith Freehills Dispute Resolution – Arbitration News, 23 August 2012 News in Brief: Australia to reject investor-state dispute resolution in TPPA, ITN 3 (2), April 2012 News in Brief: Belgian ratification of Colombia BIT suspended in face of labour protest, ITN, 23 September 2010 News in Brief: South Africa begins withdrawing from EU-member BITs, ITN, 30 October 2012 Negotiating documents Council (EU) directives for the negotiation on the Transatlantic Trade and Investment Partnership between the European Union and the United States of America, Brussels, 17 June 2013 http://www.bfmtv.com/economie/exclusif-dit-mandat-negociation-europe-etats-unis-540582.html Council (EU) negotiating directives of 12 September 2011 http://www.s2bnetwork.org/ themes/eu-investment-policy/eu-documents/text-of-the-mandates.html Draft CETA Investment Text of 7 February 2013 http://tradejustice.ca/pdfs/CETA_Investment_Rules_%20February7_2013.pdf Draft CETA Investment Text of 31 May 2013 http://www.tradejustice.ca/about-ceta/ sample-page/ European Commission (2012), EU Canada Comprehensive Economic and Trade Agreement – Landing zones, DS 1744/12, Brussels, 6 November 2012 http://www.s2bnetwork.org/fileadmin/dateien/downloads/CETA_-_EU_leaked_investments_protection.pdf

328

Bibliography OECD Multilateral Agreement on Investment, General Exceptions, Country Specific Reservations, Temporary Derogations, Note by the Chairman, DAFFE/MAI(95)6, 21 November 1995 OECD Multilateral Agreement on Investment, Draft Article on General Exceptions, Note by the Chairman, DAFFE/MAI/DG2(95)2/REV1, 8 January 1996 OECD Multilateral Agreement on Investment (MAI): Regional Economic Integration Organisations (Note by the Chairman), DAFFE/MAI(96)12, 10 April 1996 OECD Multilateral Agreement on Investment, Definition of “Investment” and General Safeguard Provisions, Note by the Chair, DAFFE/MAI/EG5(97)1, 14 January 1997 OECD Multilateral Agreement on Investment Draft Consolidated Text, DAFFE/ MAI(98)7/REV1, 22 April 1998 http://www1.oecd.org/daf/mai/pdf/ng/ ng987r1e.pdf (Draft MAI) OECD Multilateral Agreement on Investment, Report by the Chairman to the Negotiating Group, DAFFE/MAI(98)17, 4 May 1998 http://www.oecd.org/daf/mai/pdf/ng/ ng9817e.pdf Trans-Pacific Partnership Agreement, Draft investment chapter http://www.citizenstrade.org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf (June 2012) Other international legal instruments Draft Articles on Responsibility of States for Internationally Wrongful Acts, Report of the International Law Commission on the Work of Its Fifty-third Session (23 April – 1 June and 2 July – 10 August 2001), UN GAOR, 56th Sess., Supp. No. 10, UN Doc. A/56/10 (2001) Draft Articles on the responsibility of international organizations, adopted by the International Law Commission at its sixty-third session, in 2011, and submitted to the General Assembly (A/66/10, para. 87), YBILC 2011, vol. II, Part Two Declaration on Cultural Diversity adopted on 7 December 2000 by the Council of Europe https://wcd.coe.int/ViewDoc.jsp?id=389843 Declaration of Cotonou adopted on 14-15 June 2001 by the Organisation Internationale de la Francophonie (OIF) http://www.francophonie.org/IMG/pdf/Conf_minis_Culture_Cotonou.pdf UN General Assembly (1962), Resolution 1803 on Permanent Sovereignty over Natural Resources, A/RES/1803 (XVII), 14 December 1962 UN General Assembly (1974), Resolution 3201 (S-VI), Declaration on the Establishment of a New International Economic Order, A/RES/S-6/3201, 1 May 1974 UN Global Compact’s Ten Principles http://www.unglobalcompact.org/AboutTheGC/ TheTenPrinciples/index.html World Trade Organization (2001), Doha Ministerial Declaration, adopted on 14 November 2001, WT/MIN(01)/DEC/1, 20 November 2001 Other documents BIT Review: Written Comments Concerning the Administration's Review of the U.S. Model Bilateral Investment Treaty (Docket ID: USTR-2009-0019), TDM 7 (1)

329

Bibliography La promotion de la diversité musicale on the website of the French Ministry for Culture and Communication, Direction générale des médias et des industries culturelles: http://www.ddm.gouv.fr/article.php3?id_article=261 Les obligations de diffusion des services de radio et de télévision on the website of the French Ministry for Culture and Communication http://www.ddm.gouv.fr/article.ph p3?id_article=258 NAFTA Free Trade Commission Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001 http://www.sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp Public Statement on the International Investment Regime, 31 August 2010, Osgoode Hall Law School http://www.osgoode.yorku.ca/public_statement Security Council resolutions related to the work of the Committee established pursuant to Resolution 1267 (1999) concerning Al-Quaida and the Taliban and associated individuals and entities http://www.un.org/sc/committees/1267/resolutions.shtml and http://www.un.org/Docs/sc/committees/1267/1267ResEng.htm The Margin of Appreciation on the website of the Council of Europe http://www.coe.int/ t/dghl/cooperation/lisbonnetwork/themis/ECHR/Paper2_en.asp

330

Index of cases

Index of arbitral cases and awards ADF Group Inc. v. United States, ICSID Case No. ARB(AF)/00/1, Award, 9 January 2003 AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010 Ambatielos Claim, Greece v. United Kingdom, Award, 6 March 1956, UNRIAA, Vol. XII, p. 83-153 Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12, Award, 14 July 2006 BG Group Plc. v. Argentina, UNCITRAL, Final Award, 24 December 2007 British Caribbean Bank Limited v. Belize, UNCITRAL Canfor Corporation V. United States and Terminal Forest Products Ltd v. United States, UNCITRAL, Decision on Preliminary Question, 6 June 2006 Chemtura Corporation v. Canada, UNCITRAL, Award, 2 August 2010 CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005 CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, Decision on Annulment, 25 September 2007 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentina, ICSID Case No. ARB/97/3, Award, 20 August 2007 Compañia del Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Final Award, 17 February 2000 Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Annulment Proceeding, 16 September 2011 Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008 Dunkeld International Investment Ltd. v. Belize (I), UNCITRAL Dunkeld International Investment Ltd. v. Belize (II), UNCITRAL East Kalimantan v. PT Kaltim Prima Coal and others, ICSID Case No. ARB/07/3 El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award, 31 October 2011 Emanuel Too v. Greater Modesto Insurance Associates and the United States of America, Case no. 880, Award, 29 December 1989, 23 Iran-US Claims Tribunal Reports 378 (1991) Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction, 25 January 2000

331

Index of cases Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Decision on the Application for Annulment, 30 July 2010 Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007 Gabon v. Société Serete S.A., ICSID Case No. ARB/76/1 Gami Investments, Inc. v. Mexico, UNCITRAL, Final Award, 15 November 2004 Gas Natural SDG, S.A. v. Argentina, ICSID Case No. ARB/03/10, Decision on Preliminary Questions on Jurisdiction, 17 June 2005 Glamis Gold, Ltd v. United States, UNCITRAL, Award, 8 June 2009 Goetz and others v. Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999 Hochtief AG v. Argentina, ICSID Case No. ARB/07/31, Decision on Jurisdiction, 24 October 2011 ICS Inspection and Control Services Limited (United Kingdom) v. Argentina, PCA Case No. 2010-9, Award on Jurisdiction, 10 February 2012 Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Award, 21 June 2011 Inceysa Vallisoletana S.L. v. El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006 International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award, 26 January 2006 Jan de Nul N.V. and Dredging International N.V. v. Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006 Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010 L. F. H. Neer and Pauline Neer (USA) v. Mexico, Award, 15 October 1926, UNRIAA, Vol. IV, p. 60-66 Lauder v. Czech Republic, UNCITRAL, Final Award, 3 September 2001 LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 Loewen Group, Inc. and Raymond L. Loewen v. United States, ICSID Case No. ARB(AF)/98/3 Marvin Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002 Merrill and Ring Forestry L. P. v. Canada, UNCITRAL (ICSID Administered), Award, 31 March 2010 Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000 Methanex Corporation v United States, UNCITRAL, Final Award on Jurisdiction and Merits, 3 August 2005 Mondev International Ltd. v. United States, ICSID Case No. ARB(AF)/99/2 Mr Patrick Mitchell v. Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006 MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004

332

Index of cases National Grid v. Argentina, UNCITRAL, Award, 3 November 2008 National Grid v. Argentina, UNCITRAL, Decision on Jurisdiction, 20 June 2006 Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005 Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007 Phelps Dodge Corp v. Iran, Award No. 217-99-2, 19 March 1986, 10 Iran-US Claims Tribunal Reports 121 (1986) Philip Morris Asia Limited v. Australia, UNCITRAL, PCA Case No. 2012-12, Notice of Arbitration, 21 November 2011 Philip Morris Brand Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/7 Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009 Piero Foresti and others v. South Africa, ICSID Case No. ARB(AF)/07/1, Award, 4 August 2010 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008 Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005 Pope & Talbot Inc v. Canada, Award in respect of Damages, 31 May 2002 Pope & Talbot Inc. v. Canada, Award on the Merits of Phase 2, 10 April 2001 S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award, 13 November 2000 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001 Saluka Investments BV v Czech Republic, UNCITRAL, Partial Award, 17 March 2006 Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award, 28 September 2007 Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Decision on Annulment, 29 June 2010 SGS Société Générale de Surveillance S.A. v. Pakistan, ICSID Case No. ARB/01/13 SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Objections to Juisdiction, 29 January 2004 Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011 Suez, Sociedad General de Aguas de Barcelona S.A., Vivendi Universal S.A. v. Argentina, ICSID Case No. ARB/03/19 and Anglian Water Group v. Argentina (AWG), UNCITRAL, Decision on Liability, 30 July 2010 Tanzania Electric Supply Co Ltd v. IPTL, ICSID Case No. ARB/98/8 Técnicas Medioambientales Tecmed S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003

333

Index of cases Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran et al., Case no. 7, Award 141-7-2, 22 June 1984, 6 IRAN-US Claims Tribunal Reports 219 (1984) Total S.A. v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010 Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004 United Parcel Service of America Inc. v. Canada, UNCITRAL, Award on the Merits and Separate Statement of Dean Ronald A. Cass, 24 May 2007 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Germany, ICSID Case No. ARB/09/6, Award, 11 March 2011 (Vattenfall I) Vattenfall and others v. Germany, ICSID Case No. ARB/12/12 (Vattenfall II) Wintershall Aktiengesellschaft v. Argentina, ICSID Case No. ARB/04/14, Award, 8 December 2008 Index of ICJ cases Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Merits, Judgment, ICJ Reports 2010, p. 639 Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), Judgment, ICJ Reports 2005, p. 168 Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), Second Phase, Judgment, ICJ Reports 1970 (Separate Opinion of Judge Padilla Nervo and Separate Opinion of Judge Ammoun) Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), Judgment, 4 June 2008, ICJ Reports 2008, p. 177 Corfu Channel Case, Judgment, 9 April 1949, ICJ Reports 1949 Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment, ICJ Reports 2009, p. 213 Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment, 20 July 1989, ICJ Reports 1989, p. 15 Gabčíkovo-Nagymaros Project (Hungary/Slovakia), ICJ Reports 1997 Legality of Use of Force (Serbia and Montenegro v. Germany), Preliminary Objections, Judgment, ICJ Reports 2004, p. 720 Military and Paramilitary Activities In and Against Nicaragua (Nicaragua v. United States of America), Merits, Judgment, ICJ Reports 1986, p. 14 Oil Platforms (Iran v. United States of America), Judgment, ICJ Reports 2003, p. 161 Questions of Interpretation and Application of the 1971 Montreal Convention arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v. United States ofAmerica), Provisional Measures, Order, 14 April 1992, ICJ Reports 1992, p. 114 Index of CJEU judgments C-118/07 Commission v. Finland [2009] ECR I-10889

334

Index of cases C-205/06 Commission v. Austria [2009] ECR I-01301 C-249/06 Commission v. Sweden [2009] ECR I-1335 C-402/05 P and C-415/05 (Joined Cases) P. Kadi & Al Barakaat International Foundation v. Council and Commission [2008] ECR I-6351 Case 121/85 Conegate Limited v. HM Customs & Excise [1986] ECR 1007 Case 30-77 Régina v. Pierre Bouchereau [1977] ECR 1999 Case 34/79 R. v. Henn and Darby [1979] ECR 3795 Case 4/75 Rewe-Zentralfinanz Gmbh v. Landwirtschaftskammer (Cassis de Dijon) [1975] ECR 843 Case T-306/01, Yusuf and Al Barakaat International Foundation v. Council and Commission [2005] ECR II-3533 GATT/WTO reports GATT Panel Report, Canada – Administration of the Foreign Investment Review Act, L/5504, adopted 7 February 1984, BISD 30S/140 GATT Panel Report, Canada – Import Restrictions on Ice Cream and Yoghurt, L/6568, adopted 5 December 1989, BISD 36S/68 GATT Panel Report, European Economic Community – Restrictions on Imports of Dessert Apples – Complaint by Chile, L/6491, adopted 22 June 1989, BISD 36S/93 GATT Panel Report, Japan – Restrictions on Imports of Certain Agricultural Products, L/6253, adopted 2 March 1988, BISD 35S/163 GATT Panel Report, United States – Imports of Certain Automotive Spring Assemblies, L/5333, adopted 26 May 1983, BISD 30S/107 GATT Panel Report, United States – Restrictions on Imports of Tuna, DS21/R, DS21/ R, 3 September 1991, unadopted, BISD 39S/155 GATT Panel Report, United States – Section 337 of the Tariff Act of 1930, L/6439, adopted 7 November 1989, BISD 36S/345 WTO Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, 1527 WTO Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R and WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, 5 WTO Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 12 October 1998, DSR 1998: VII, 2755 WTO Appellate Body Report, United States — Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, DSR 1997:I, 323 WTO Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3 ECtHR judgment Al-Jedda v. United Kingdom, No. 27021/08, 2011 ECtHR

335

Index of cases Procedures before domestic dourts Argentina v. BG Group PLC., Appeal, United States District Court for the District of Columbia (No. 1:08-cv-00485), argued November 10, 2011, decided January 17, 2012, No. 11-7021 Argentina v. BG Group PLC., Petition to Vacate or Modify Arbitration Award, 20 March 2008, United States District Court for the District of Columbia, Case No. 08-0485 RBW Brokdorf Judgment, German Federal Constitutional Court (Bundesverfassungsgericht), Judgment of the First Senate, 14 May 1985, BVerfGE 69, 315, 1 BvR 233, 341/81

336

Index of legislation

Primary EU law Charter of Fundamental Rights of the European Union, OJ C 83/02, 30.3.2010 Consolidated version of the Treaty Establishing the European Community, OJ C 325/33, 24.12.2002 Consolidated version of the Treaty on European Union OJ C 83/13, 30.3.2010 Consolidated version of the Treaty on the Functioning of the European Union, OJ C 83/47, 30.3.2010 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed in Lisbon on 13 December 2007, entered into force on 1 December 2009, OJ C 306, 17.12.2007 Secondary EU law Decision No. 1718/2006/EC of the European Parliament and of the Council of 15 November 2006 concerning the implementation of a programme of support for the European audiovisual sector (MEDIA 2007), OJ L 327, 24.11.2006 Directive 2007/65/EC of the European Parliament and of the Council of 11 December 2007 amending Council Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities, OJ L 332, 18.12.2007 Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive), OJ L 095, 15.4.2010 P. 0001 – 0024 Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by Law, Regulation or Administrative Action in Member States concerning the pursuit of television broadcasting activities (Television without Frontiers), OJ L 298, 17.10.1989 Directive 97/36/EC of the European Parliament and of the Council, OJ L 202, 30.7.1997 National legislation Canada: Investment Canada Act, R.S.C., 1985, c. 28 (1st Supp.), Consolidated version of 10 December 2012, last amended on 29 June 2012, published by the Canadian Ministry of Justice at http://laws-lois.justice.gc.ca Ecuador: Republic of Ecuador Constitution of 2008 http://pdba.georgetown.edu/Constit utions/Ecuador/ecuador08.html

337

Index of legislation France : Ordonnance n° 2009-901 du 24 juillet 2009 relative à la partie législative du code du cinéma et de l'image animée, JORF n°0170 of 25 July 2009, p. 12443, texte n° 39 France: Décret n° 2004-1481 du 23 décembre 2004, JORF of 30 December 2004 page 22396 France: Décret n° 2005-1739 du 30 décembre 2005 réglementant les relations financières avec l’étranger et portant application de l’article L. 151-3 du code monétaire et financier, JORF of 31 décembre 2005, texte n° 45 et JORF n°3 of 4 January 2006, texte n° 9 page 124 (rectificatif) France: Décret n° 2010-416 du 27 avril 2010 relatif à la contribution cinématographique et audiovisuelle des éditeurs de services de télévision et aux éditeurs de services de radio distribués par les réseaux n’utilisant pas des fréquences assignées par le Conseil supérieur de l’audiovisuel, JORF of 29 April 2010, texte n° 36 France: Décret n° 2010-747 du 2 juillet 2010 relatif à la contribution à la production d’œuvres cinématographiques et audiovisuelles des services de télévision diffuses par voie hertzienne (rectificatif), JORF of 10 July 2010, texte n° 61 France: Décret n° 2010-747 du 2 juillet 2010 relatif à la contribution à la production d’œuvres cinématographiques et audiovisuelles des services de télévision diffusés par voie hertzienne terrestre, JORF of 3 July 2010, texte n° 40 France: Décret n° 87-36 du 26 janvier 1987 pris pour l’application de la loi n° 86-1067 du 30 septembre 1986 relative à la liberté de communication et fixant pour certains services de télévision le régime de diffusion des oeuvres cinématographiques et audiovisuelles, JORF of 27 January 1987 Décret n°88-607 du 6 mai 1988 portant modification du décret n° 87-37 du 26 janvier 1987 pris pour l’application de l’article 27-1 de la loi n° 86-1067 du 30 septembre 1986 relative à la liberté de communication et fixant pour certains services de télévision le régime applicable à la publicité et au parrainage, JORF of 8 May 1988 France: Décret n° 90-66 du 17 janvier 1990 pris pour l’application de la loi n° 86-1067 du 30 septembre 1986 et fixant les principes généraux concernant la diffusion des œuvres cinématographiques et audiovisuelles par les éditeurs de services de télévision France: Loi n° 2009-879 du 21 juillet 2009 portant réforme de l’hôpital et relative aux patients, à la santé et aux territoires, JORF n°0167 of 22 July 2009 page 12184 France: Loi n° 2011-525 du 17 mai 2011 de simplification et d’amélioration de la qualité du droit, JORF n°0115 of 18 May 2011 page 8537 France: Loi n° 86-1067 du 30 septembre 1986 relative à la liberté de communication (Loi Léotard), JORF of 1 October 1986 page 11755 United States: Trade Act of 2002, Pub. L. 107-210, HR 3009, 116 Stat. 933, 6 August 2002, 19 USC, § 3803-3805, US Trade Promotion Authority Act

338

Index of treaties

Bilateral investment treaties Abkommen zwischen der Regierung der Republik Österreich und deer Regierung der Republik Belarus über die Förderung und den Schutz von Investitionen, signed in Minsk, 16 May 2001, entered into force 1 June 2002 (Austria-Belarus BIT) Accord entre l’Union économique belgo-luxembourgeoise et les Etats-Unis du Mexique concernant l’encouragement et la protection réciproques des investissements, signed in Mexico, 27 August 1998, entered into force 14 March 2003 (BLEU-Mexico BIT) Accord entre la Confédération suisse et la République orientale de l’Uruguay concernant l’encouragement et la protection réciproques des investissements, signed in Bern, 7 October 1988, entered into force 22 April 1991 (Switzerland-Uruguay BIT) Accord entre la Confédération suisse et le Royaume d’Arabie saoudite concernant l’encouragement et la protection réciproques des investissements, signed in Riyadh, 1 April 2006, entered into force 9 August 2008 (Switzerland-Saudi Arabia BIT) Accord entre la République française et les Émirats arabes unis sur l’encouragement et la protection réciproques des investissements, signed in Paris, 9 September 1991, entered into force 10 January 1995 (France-United Arab Emirates BIT) Accord entre le Conseil fédéral suisse et le Gouvernement de la République d’Afrique du Sud concernant la promotion et la protection réciproque des investissements, signed in Bern, 27 June 1995, entered into force 29 November 1997 (Switzerland-South Africa BIT) Accord entre le gouvernement de la république des Philippines et le gouvernement de la République française sur l’encouragement des investissements français aux Philippines, signed in Versailles, 14 June 1976, entered into force [data unavailable] (France-Philippines BIT 1976) Accord entre le Gouvernement de la République française et la Bosnie-Herzégovine sur l’encouragement et la protection réciproques des investissements, signed in Paris, 12 December 2003, entered into force 18 December 2005 (France-Bosnia and Herzegovina BIT) Accord entre le gouvernement de la République française et la grande Jamahiriya arabe libyenne populaire et socialiste sur l’encouragement et la protection réciproques des investissements, signed in Paris, 19 April 2004, entered into force 29 January 2006 (France-Libya BIT) Accord entre le gouvernement de la République française et le gouvernement de la Jamaïque sur l’encouragement et la protection réciproques des investissements, signed in Paris, 25 January 1993, entered into force 15 September 1994 (France-Jamaica BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République algérienne démocratique et populaire sur l’encouragement et la protection réciproques des investissements, signed in Algiers, 13 February 1993, entered into force 27 June 2000 (France-Algeria)

339

Index of treaties Accord entre le gouvernement de la République française et le gouvernement de la République argentine sur l’encouragement et la protection réciproque des investissements, signed in Paris, 3 July 1991, entered into force 3 March 1993 (France-Argentina BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République d’Afrique du Sud sur l’encouragement et la protection réciproques des investissements, signed in Paris, 11 October 1995, entered into force 22 June 1997 (France-South Africa BIT) Accord entre le gouvernement de la République française et le gouvernement de la république d’Albanie sur l’encouragement et la protection réciproques des investissements, signed in Paris, 13 June 1995, entered into force 14 June 1996 (France-Albania BIT) Accord entre le gouvernement de la République française et le gouvernement de la république d’Arménie sur l’encouragement et la protection réciproques des investissements, signed in Erevan, 4 November 1995, entered into force 21 June 1997 (FranceArmenia BIT 1995) Accord entre le Gouvernement de la République française et le Gouvernement de la République d’Azerbaïdjan sur l’encouragement et la protection réciproques des investissements, signed in Baku, 1 September 1998, entered into force 24 August 2000 (France-Senegal BIT) Accord entre le gouvernement de la République française et le gouvernement de la république de Djibouti sur l’encouragement et la protection réciproques des investissements, signed in Paris, 13 December 2007, entered into force 15 June 2010 (FranceDjibouti BIT) Accord entre le gouvernement de la République française et le gouvernement de la république de Guinée Équatoriale sur l’encouragement et la protection réciproques des investissements, signed in Paris, 3 March 1982, entered into force 23 September 1983 (France-Guinea BIT) Accord entre le gouvernement de la République française et le gouvernement de la république de Haïti sur l’encouragement et la protection réciproques des investissements, signed in Paris, 23 May 1984, entered into force 25 March 1985 (France-Haiti BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République de l’Ouganda sur l’encouragement et la protection réciproques des investissements, signed in Kampala, 3 January 2003, entered into force 20 December 2004 (France-Uganda BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République de Madagascar sur l’encouragement et la protection réciproques des investissements, signed in Saint-Denis, 25 July 2003, entered into force 17 April 2005 (France-Madagascar BIT) Accord entre le gouvernement de la République française et le gouvernement de la république de Turquie sur l’encouragement et la protection réciproques des investissements, signed in Ankara, 15 June 2006, entered into force 3 August 2009 (FranceTurkey BIT)

340

Index of treaties Accord entre le Gouvernement de la République française et le Gouvernement de la République de Zambie sur l’encouragement et la protection réciproques des investissements, signed in Lusaka, 1 January 2002, not in force (France-Zambia BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République démocratique fédérale d’Ethiopie sur l’encouragement et la protection réciproques des investissements, signed in Paris, 25 June 2003, entered into force 7 August 2004 (France-Ethiopia BIT) Accord entre le gouvernement de la République française et le gouvernement de la république des Philippines sur l’encouragement et la protection réciproques des investissements, signed in Paris, 13 September 1994, entered in force 13 June 1996 (FrancePhilippines BIT 1994) Accord entre le Gouvernement de la République française et le Gouvernement de la République du Chili sur l’encouragement et la protection réciproques des investissements, signed in Paris, 14 July 1992, entered into force 24 July 1994 (France-Chile BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République du Ghana sur l’encouragement et la protection réciproques des investissements, signed in Paris, 26 March 1999, not in force, source: UNCTAD (FranceGhana BIT) Accord entre le gouvernement de la République française et le gouvernement de la république du Guatemala sur l’encouragement et la protection réciproques des investissements, signed in Guatemala, 27 May 1998, entered into force 28 October 2001 (France-Guatemala BIT) Accord entre le gouvernement de la République française et le gouvernement de la république du Kazakhstan sur l’encouragement et la protection réciproques des investissements, signed in Paris, 3 February 1998, entered into force 21 August 2000 (France-Kazakhstan BIT) Accord entre le Gouvernement de la République Française et le Gouvernement de la République du Kenya sur l’encouragement et la protection réciproques des investissements, signed in Nairobi, 4 December 2007, not in force (France-Kenya BIT) Accord entre le gouvernement de la République française et le gouvernement de la république du Sénégal sur la promotion et la protection réciproques des investissements, signed in Dakar, 26 July 2007, entered into force 30 May 2010 (France-Senegal BIT) Accord entre le Gouvernement de la République française et le Gouvernement de la République du Tadjikistan sur l’encouragement et la protection réciproques des investissements, signed in Paris, 1 January 2002, entered into force 24 August 2004 (France-Tajikistan BIT) Accord entre le gouvernement de la République française et le gouvernement de la république islamique d’Iran sur l’encouragement et la protection réciproques des investissements, signed in Tehran, 12 May 2003, entered into force 12 November 2004 (France-Iran BIT) Accord entre le gouvernement de la République française et le gouvernement de la république islamique du Pakistan sur l’encouragement et la protection réciproques des investissements, signed in Paris, 1 June 1983, entered into force 14 December 1984 (France-Pakistan BIT)

341

Index of treaties Accord entre le Gouvernement de la République française et le Gouvernement de la République populaire de Bulgarie sur l’encouragement et la protection réciproque des investissements, signed in Sofia, 5 April 1989, entered into force 1 May 1990 (FranceBulgaria BIT) Accord entre le Gouvernement de la République Française et le Gouvernement de la République Populaire de Chine sur l’encouragement et la protection réciproques des investissements, signed in Beijing, 26 November 2007, entered into force 20 August 2010 (France-China BIT) Accord entre le gouvernement de la République française et le gouvernement de la république populaire du Bangladesh sur l’encouragement et la protection des investissements, signed in Paris, 10 September 1985, entered into force 9 October 1986 (France-Bangladesh BIT) Accord entre le Gouvernement de la République française et le Gouvernement de l’État d’Israël sur l’encouragement et la protection réciproques des investissements, signed in Paris, 9 June 1983, entered into force 11 January 1985 (France-Israel BIT) Accord entre le Gouvernement de la République française et le Gouvernement de Roumanie sur l’encouragement et la protection réciproques des investissements, signed in Paris, 21 March 1995, entered into force 20 June 1996 (France-Romania BIT) Accord entre le Gouvernement de la République française et le Gouvernement des États Unis Mexicains sur l’encouragement et la protection réciproques des investissements, signed in Mexico City, 12 November 1998, entered into force 12 October 2000 (France-Mexico BIT) Accord entre le gouvernement de la République française et le gouvernement du royaume d’Arabie saoudite sur l’encouragement et la protection réciproques des investissements, signed in Jeddah, 26 June 2002, entered in force 18 March 2004 (France SaudiArabia BIT 2002) Accord entre le Gouvernement de la République française et le Gouvernement du Royaume du Cambodge sur l’encouragement et la protection réciproques des investissements, signed in Phnom Penh, 13 July 2000, entered into force 24 July 2002 (FranceCambodia BIT) Accord entre le Gouvernement du Burkina Faso, d’une part, et l’Union économique belgo-luxembourgeoise d’autre part, concernant l’encouragement et la protection réciproques des investissements, signed in Brussels, 18 May 2001, entered into force 13 January 2004 (BLEU-Burkina Faso BIT) Accord entre le Gouvernement du Royaume du Maroc et le Gouvernement de la République du Tchad concernant l’encouragement et la protection réciproques des investissements, signed in Rabat, 4 December 1997, not in force (Morocco-Chad BIT) Accord entre le Gouvernement du Royaume du Maroc et le Gouvernement de la République Populaire de Chine concernant l’encouragement et la Protection réciproques des investissements, signed in Rabat, 27 March 1995, entered into force 27 November 1995 (Morocco-China BIT) Accord entre le Gouvernement du Royaume du Maroc et l’Union économique BelgoLuxembourgeoise concernant l’encouragement et la protection réciproques des investissements, signed in Rabat, 13 April 1999, entered into force 29 May 2002 (BLEUMorocco BIT)

342

Index of treaties Accord entre l’Union économique belgo-luxembourgeoise et de Gouvernement d’Ukraine concernant l’encouragement et la protection réciproques des investissements, signed in Kiev, 20 May 1996, entered into force 27 January 2001 (BLEU-Ukraine BIT) Accord entre l’Union économique belgo-luxembourgeoise et la République algérienne démocratique populaire concernant l’encouragement et la protection réciproques des investissements, signed in Alger, 24 April 1991, entered into force 13 February 1992 (BLEU-Algeria BIT) Accord entre l’Union économique belgoluxembourgeoise et la République d’El Salvador concernant l’encouragement et la protection réciproques des investissements, signed in Brussels, 12 October 1999, entered into force 12 November 2002 (BLEU-El Salvador BIT) Accord entre l’Union économique belgo-luxembourgeoise et la République orientale de l’Uruguay concernant l’encouragement et la protection réciproques des investissements, signed in Brussels, 4 November 1991, entered into force 23 April 1999, UNTS Vol. 2137, Reg. I-37265 (BLEU Uruguay BIT) Accord entre l’Union économique belgo-luxembourgeoise et la République socialiste tchécoslovaque concernant la promotion et la protection réciproques des investissements, signed in Brussels, 14 April 1989, entered into force 13 February 1992 (BLEUCzech Republic BIT) Accord entre l’Union économique belgo-luxembourgeoise et la République tunisienne concernant l’encouragement et la protection réciproques des investissements, signed in Tunis, 8 January 1997, entered into force 18 October 2002 (BLEU-Tunisia BIT) Accord entre l’Union économique belgo-luxembourgeoise et le Gouvernement de la République d’Albanie concernant l’encouragement et la protection réciproques des investissements, signed in Tirana, 1 February 1999, entered into force 18 October 2002 (BLEU-Albania BIT) Accord entre l’Union économique Belgo-Luxembourgeoise et le Gouvernement de la République populaire de Chine concernant l’Encouragement et la Protection réciproques des Investissements, signed in Beijing, 6 June 2005, entered into force 1 December 2009 (BLEU-China BIT 2005) Accord entre l’Union économique belgo-luxembourgeoise et le Governement de la République de Bolivie concernant l’encouragement et la protection réciproques des investissements, signed in Brussels, 25 April 1990, entered into force 10 January 2004 (BLEU-Bolivia BIT) Accord entre l’Union économique belgo-luxembourgeoise, d’une part, et la Gouvernement de la République d’Ouzbekistan, d’autre part, concernant l’encouragement et la protection réciproques des investissements, signed in Tachkent, 17 April 1998, entered into force 6 February 2001 (BLEU-Uzbekistan BIT) Accord entre l’Union économique Belgo-Luxembourgeoise, d’une part, et la République de Madagascar, d’autre part, concernant l’encouragement et la protection réciproques des investissements, signed in Antananarivo, 29 September 2005, entered into force 29 November 2008 (BLEU-Madagascar BIT)

343

Index of treaties Accord entre l’Union économique belgo-luxembourgeoise, d’une part, et la République d’Estonie, d’autre part, concernant l’encouragement et la protection réciproques des investissements, signed in Brussels, 24 January 1996, entered into force 23 October 1999 (BLEU-Estonia BIT) Acuerdo entre el Reino de España y la Gran Jamahiriya Árabe Libia Popular Socialista para la promoción y protección recíproca de inversiones, signed in Madrid, 17 December 2007, entered into force 1 August 2009 (Spain-Libya BIT) Acuerdo entre el Reino de España y la República de Guatemala para la promoción y la protección recíproca de inversiones, signed in Guatemala, 9 December 2002, entered into force 21 May 2004 (Spain-Guatemala BIT) Acuerdo entre la República de Chile y la unión Económica Belgo-Luxemburguesa relativo al fomento y protección recíprocos de las Inversiones y Protocolo, signed in Brussels, 15 July 1992, entered into force 5 August 1999 (BLEU-Chile BIT) Acuerdo para la promoción y protección recíproca de inversiones entre el Reino de España y la República de El Salvador, signed in San Salvador, 14 February 1995, entered into force 20 February 1996 (Spain-El Salvador BIT) Acuerdo para la Promoción y Protección recíproca de Inversiones entre el Reino de Espana y la República Gabonesa, signed in Madrid, 2 March 1995, entered into force 12 December 2001 (Spain-Gabon BIT) Acuerdo para la Protección y Fomento recíprocos de Inversiones entre el Reino de Espana y la República Popular de China, signed in Madrid, 6 February 1992, entered into force 1 May 1993 (Spain-China BIT) Agreement between Canada and the Czech Republic for the Promotion and Protection of Investments, signed in Prague, 6 May 2009, entered into force 22 January 2012 (Canada-Czech Republic BIT) Agreement between Canada and the Hashemite Kingdom of Jordan for the Promotion and Protection of Investments, signed in Amman, 28 June 2009, entered into force 14 December 2009 (Canada-Jordan BIT) Agreement between Canada and the Republic of Peru for the Promotion and Protection of Investments, signed in Hanoi, 14 November 2006, entered into force 20 June 2007, suspended by Canada-Peru FTA (Canada-Peru BIT) Agreement between Canada and the Slovak Republic for the Promotion and Protection of Investments, signed in Bratislava, 20 July 2010, entered into force 14 March 2012 (Canada-Slovakia BIT) Agreement between Canada and the State of Kuwait for the Promotion and Protection of Investments, signed in Ottawa, 26 September 2011, not in force (Canada-Kuwait BIT) Agreement between Japan and the Kingdom of Cambodia for the Liberalization, Promotion and Protection of Investment, signed in Tokyo, 14 June 2007, entered into force 31 July 2008 (Japan-Cambodia BIT) Agreement between Japan and the Lao People’s Democratic Republic for the Liberalisation, Promotion and Protection of Investment, signed in Tokyo, 16 January 2008, entered into force 3 August 2009 (Japan-Laos BIT)

344

Index of treaties Agreement between Japan and the People’s Republic of China concerning the Encouragement and the Reciprocal Protection of Investment, signed in Beijing, 27 August 1988, entered into force 14 May 1989 (Japan-China BIT) Agreement between Japan and the Republic of Colombia for the Liberalization, Promotion and Protection of Investment, signed in Tokyo, 12 September 2011, not in force (Colombia-Japan BIT) Agreement between Japan and the Republic of Peru for the Promotion, Protection and Liberalisation of Investment, signed in Lima, 21 November 2008, entered into force 10 December 2009 (Japan-Peru BIT) Agreement between Japan and the Socialist Republic of Viet Nam for the Liberalization, Promotion and Protection of Investment, signed in Tokyo, 14 November 2003, entered into force 19 December 2004 (Japan-Vietnam BIT) Agreement between the Belgian-Luxembourg Economic Union and the Republic of Mauritius on the Reciprocal Promotion and Protection of Investments, signed in Brussels, 30 November 2005, entered into force 16 December 2009 (BLEU-Mauritius BIT) Agreement between the Belgian-Luxembourg Economic Union, on the one hand, and the Federal Democratic Republic of Ethiopia, on the other hand, on the Reciprocal Promotion and Protection of Investments, signed in Brussels, 26 October 2006, not in force (BLEU-Ethiopia BIT) Agreement between the Belgian-Luxembourg Economic Union, on the one hand, and the Government of the Republic of Peru, on the other hand, on the Reciprocal Promotion and Protection of Investments, signed in Brussels, 12 October 2005, entered into force 12 September 2008 (BLEU-Peru BIT) Agreement between the Belgium-Luxembourg Economic Union, on the one Hand, and the Republic of Tajikistan, on the other Hand, on the reciprocal promotion and protection of investments, signed in Brussels, 10 February 2009, not in force (BLEUTajikistan BIT) Agreement between the Belgium-Luxembourg Economic Union, on the one hand, and the Republic of Colombia, on the other hand, on the reciprocal Promotion and Pretection of Investments, signed in Brussels, 4 February 2009, ratification suspended (BLEU-Colombia BIT) Agreement between the Belgium-Luxembourg economic Union, on the one hand, and the Republic of Panama, on the other hand, on the reciprocal promotion and protection of investments, signed in Panama city, 26 March 2009, not in force (BLEU-Panama BIT) Agreement between the Belgo-Luxembourg Economic Union and the Government of the Republic of Zambia on the reciprocal promotion and protection of investments, signed in Lusaka, 28 May 2001, not in force (BLEU-Zambia BIT) Agreement between the Belgo-Luxembourg economic Union and the Government of the Republic of Azerbaijan on the reciprocal promotion and protection of investments, signed in Brussels, 18 May 2004, entered into force 27 May 2009 (BLEU-Azerbaijan BIT)

345

Index of treaties Agreement between the Belgo-Luxembourg economic Union, on the one hand, and Bosnia and Herzegovina, on the other hand, on the reciprocal promotion and protection of investments, signed in Sarajevo, 3 March 2004, entered into force 16 September 2010 (BLEU-Bosnia and Herzegovina BIT) Agreement between the Belgo-Luxembourg economic Union, on the one hand, and the Government of the Republic of Belarus, on the other hand, on the reciprocal promotion and protection of investments, signed 9 April 2002, not in force (BLEU-Belarus BIT) Agreement between the Belgo-Luxemburg [sic] Economic Union, on the one hand, and the [sic] Serbia and Montenegro, on the other hand, on the Reciprocal Promotion and Protection of Investments, signed in Belgrade, 6 March 2004, entered into force 12 August 2007 (BLEU-Serbia BIT) Agreement between the Belgo-Luxemburg Economic Union and the Governemnt of the Republic of Guatemala on the Reciprocal Promotion and Protection of Investments, signed in Brussels, 14 April 2005, not in force (BLEU-Guatemala BIT) Agreement between the Belgo-Luxemburg economic Union, on the one hand, and the Great Socialist People’s Libyan Arab Jamahiriya, on the other hand, on the reciprocal Promotion and Protection of Investments, signed in Sirte, 15 February 2004, entered into force 8 December 2007 (BLEU-Libya BIT) Agreement between the Czech Republic and Ireland for the Promotion and Reciprocal Protection of Investments, signed 27 June 1996, entered into force 1 August 1997, terminated (Ireland-Czech Republic BIT) Agreement between the Czech Republic and the Kingdom of Saudi Arabia for the Encouragement and Reciprocal Protection of Investments, signed in Riyadh, 18 November 2009, entered into force 13 March 2011 (Czech Republic-Saudi Arabia BIT) Agreement between the Czech Republic and the Republic of India for the Promotion and Protection of Investments, signed in Prague, 11 October 1996, entered into force [data unavailable], renegotiated, new agreement concluded 8 July 2010, entered into force 24 March 2011 (Czech Republic-India BIT) Agreement between the Czech Republic and the Republic of South Africa for the Promotion and Reciprocal Protection of Investments, signed in Prague, 14 December 1998, entered into force 17 September 1999 (Czech Republic-South Africa BIT) Agreement between the Federal Republic of Germany and the Union of Soviet Socialist Republics concerning the Promotion and Reciprocal Protection of Investments, signed in Bonn, 13 June 1989, entered into force 5 August 1991 (Germany-Russia BIT) Agreement between the Federal Republic of Germany and Burkina Faso concerning the Encouragement and Reciprocal Protection of Investments, signed in Ouagadougou, 22 October 1996, entered into force 21 November 2009 (Germany-Burkina Faso BIT) Agreement between the Federal Republic of Germany and the Democratic Republic of Algeria concerning the Encouragement and Reciprocal Protection of Investments, signed in Algiers, 11 March 1996, entered into force 30 May 2002 (Germany-Algeria BIT) Agreement between the Federal Republic of Germany and the Federal Republic of Cameroon concerning the Encouragement and Reciprocal Protection of Investments, signed in Bonn, 29 June 1962, entered into force 31 November 1963 (Germany-Cameroon BIT)

346

Index of treaties Agreement between the Federal Republic of Germany and the Government of the Kingdom of Saudi-Arabia concerning the Encouragement and Reciprocal Protection of Investments, signed in Riad, 29 October 1996, entered into force 9 January 1999 (Germany-Saudi Arabia BIT) Agreement between the Federal Republic of Germany and the Kingdom of Cambodia concerning the Encouragement and the Reciprocal Protection of Investments, signed in Phnom Penh, 15 February 1999, entered into force 14 April 2002 (Germany-Cambodia BIT) Agreement between the Federal Republic of Germany and the Lao People’s Democratic Republic concerning the Encouragement and Reciprocal Protection of Investments, signed in Vientiane, 9 August 1996, entered into force 24 March 1999 (Germany-Laos BIT) Agreement between the Federal Republic of Germany and the Republic of Argentina concerning the Encouragement and Reciprocal Protection of Investments, signed in Bonn, 9 April 1991, entered into force 8 November 1993 (Germany-Argentina BIT) Agreement between the Federal Republic of Germany and the Republic of Guinea concerning the Encouragement and Reciprocal Protection of Investments, signed in Berlin, 8 November 2006, not in force (Germany-Guinea BIT) Agreement between the Federal Republic of Germany and the Republic of Rwanda concerning the Encouragement and Reciprocal Protection of Investments, signed in Kigali, 18 May 1967, entered into force 28 February 1969 (Germany-Rwanda BIT) Agreement between the Federal Republic of Germany and the Republic of the Philippines concerning the Encouragement and the Reciprocal Protection of Investments, signed in Bonn, 18 April 1997, entered into force 1 February 2000 (Germany-Philippines BIT) Agreement between the Federal Republic of Germany and the Republic of Venezuela concerning the Encouragement and Reciprocal Protection of Investments, signed in Caracas, 14 May 1996, entered into force 16 October 1998 (Germany-Venezuela BIT) Agreement between the Federal Republic of Germany and the State of Qatar concerning the Encouragement and the Reciprocal Protection of Investments, signed in Bonn, 14 Juni 1996, entered into force 10 January 1999 (Germany-Qatar BIT) Agreement between the Government of the Republic of Italy and the Government of the Kingdom of Saudi-Arabia concerning the Encouragement and Reciprocal Protection of Investments, signed in Gedda, 10 September 1996, entered into force 22 May 1998 (Italy-Saudi Arabia BIT) Agreement between the Government of the Democratic Socialist Republic of Sri Lanka and the Government of the People’s Republic of China on the Reciprocal Promotion and Protection of Investments, signed in Colombo, 13 March 1986, entered into force 25 March 1987 (China-Sri Lanka BIT) Agreement between the Government of the Republic of the Philippines and the BelgoLuxemburg economic Union, on the reciprocal promotion and the protection of Investments, signed in Manila, 14 January 1998, entered into force 19 December 2003 (BLEU-Philippines BIT)

347

Index of treaties Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, signed in New Delhi, 26 February 1999, entered into force 4 May 2000 (Australia-India BIT) Agreement between the Government of Canada and the Government of Romania for the Promotion and Reciprocal Protection of Investments, signed in Bucharest, 8 May 2009, entered into force 23 November 2011 (Canada-Romania BIT) Agreement between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments, signed in Vladivostok, 9 September 2012, not in force (Canada-China BIT) Agreement between the Government of Canada and the Government of the Republic of Latvia for the Promotion and Protection of Investments, signed in Ottawa, 26 April 1995, entered into force 27 July 1995 (Canada-Latvia BIT) Agreement between the Government of Canada and the Government of the Republic of Latvia for the Promotion and Protection of Investments, signed in Riga, 5 May 2009, entered into force 24 November 2011 (Canada-Latvia BIT) Agreement between the Government of Denmark and the Government of the Republic of Indonesia concerning the encouragement and the reciprocal protection of investments, signed in Djakarta, 22 January 2007, not in force (Denmark-Indonesia BIT 2007) Agreement between the Government of Hong Kong and the Government of New Zealand for the Promotion and Protection of Investments, signed in Hong Kong, 6 July 1995, entered into force 5 August 1995 (New Zealand-Hong Kong BIT) Agreement between the Government of India and the Government of Nepal for the Promotion and Protection of Investments, signed in New Delhi, 21 October 2011, not in force (India-Nepal BIT) Agreement between the Government of Japan and the Government of the Independent State of Papua New Guinea for the Promotion and Protection of Investment, signed in Tokyo, 26 April 2011, not in force (Japan-Papua New Guinea BIT) Agreement between the Government of New Zealand and the Government of the People’s Republic of China on the promotion and protection of investments, signed in Wellington, 22 November 1988, entered into force 25 March 1989 (New Zealand-China BIT) Agreement between the Government of New Zealand and the Government of the Republic of Chile the Promotion and Protection of Investment, signed 22 July 1999, not in force (China-New Zealand BIT) Agreement between the Government of the Argentine Republic and the Government of New Zealand for the promotion and reciprocal protection of investments, signed in Buenos Aires, 27 August 1999, not in force (Argentina-New Zealand BIT) Agreement between the Government of the Czech Republic and the Government of the Republic of Singapore on the Promotion and Protection of Investments, signed in Singapore, 8 April 1995, entered into force 8 October 1995 (Singapore-Czech Republic BIT)

348

Index of treaties Agreement between the Government of the Democratic Socialist Republic of Sri Lanka and the government of the republic of India for the Promotion and Protection of Investment, signed in Colombo, 22 January 1997, entered into force 13 February 1998 (India-Sri Lanka BIT) Agreement between the Government of the Federal Republic of Nigeria and the Government of the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments, signed in Abuja, 11 December 1990, entered into force 11 December 1990 (UK-Nigeria BIT) Agreement between the Government of the Hashemite Kingdom of Jordan and the Government of the Kingdom of Morocco on the mutual Promotion and Protection of Investments, signed in Rabat, 16 June 1998, entered into force 7 February 2000 (Morocco-Jordan BIT) Agreement between the Government of the Hellenic Republic and the Government of Romania on the Promotion and Reciprocal Protection of Investments, signed in Athens, 16 September 1991, entered into force 11 June 1998 (Greece-Romania BIT) Agreement between the Government of the Hellenic Republic and the Government of the Kingdom of Morocco on the Promotion and Reciprocal Protection of Investments, signed in Athens, 16 February 1994, entered into force 28 June 2000 (Greece-Morocco BIT) Agreement between the Government of the Hellenic Republic and the Government of the Republic of South Africa on the Promotion and Reciprocal Protection of Investments, signed in Pretoria, 19 November 1998, entered into force 5 September 2001 (Greece-South Africa BIT) Agreement between the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments, signed in Hong Kong, 30 July 1998, entered into force 12 April 1999 (UK-Hong Kong BIT) Agreement between the Government of the Islamic Republic of Pakistan and the Government of the Kingdom of Morocco for the Promotion and Protection of investments, signed in Islamabad, 16 April 2001, not in force (Morocco-Pakistan BIT) Agreement between the Government of the Kingdom of Cambodia and the Government of the Republic of Singapore on the Promotion and Protection of Investments, signed in Phnom Penh, 4 November 1996, entered into force 24 February 2000 (SingaporeCambodia BIT) Agreement between the government of the Kingdom of Denmark and the government of the Republic of Poland for the promotion and the reciprocal protection of investments, signed in Copenhagen, 1 May 1990, entered into force 13 October 1990 (DenmarkPoland BIT) Agreement between the Government of the Kingdom of Norway and the Government of the Republic of Lithuania on the Promotion and Mutual Protection of Investment, signed in Vilnius 16 June 1992, entered into force 20 December 1992 (LithuaniaNorway BIT)

349

Index of treaties Agreement between the Government of the Kingdom of Saudi arabia and the Government of Malaysia concerning the Promotion and Reciprocal Protection of Investments, signed in Kuala Lumpur, 25 October 2000, entered into force 14 August 2001 (Saudi Arabia-Malaysia BIT) Agreement between the Government of the Kingdom of Sweden and Bolivia on the Promotion and mutual Protection of Investments, signed in Stockholm, 20 September 1990, entered into force 3 July 1992 (Sweden-Bolivia BIT) Agreement between the Government of the Kingdom of Sweden and the Government of the United Mexican States concerning the Promotion and reciprocal Protection of Investments, signed 3 October 2000, entered into force 1 July 2001 (Sweden-Mexico BIT) Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Albania on the Promotion and Reciprocal Protection of Investments, signed in Stockholm, 31 March 1995, entered into force 1 April 1996 (Sweden-Albania BIT) Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Argentina on the Promotion and Reciprocal Protection of Investments, signed in Stockholm, 22 November 1991, entered into force 28 September 1992 (Sweden-Argentina BIT) Agreement between the Government of the Kingdom of Sweden and the Government of the Russian Federation on the Promotion and Reciprocal Protection of Investment, signed in Moscow, 19 April 1995, entered into force 7 June 1996 (Sweden-Russia BIT) Agreement between the Government of the Kingdom of the Netherlands and the Government of Malta concerning the encouragement and reciprocal protection of investments, signed in ’s-Gravenhage, 10 September 1984, entered into force 1 July 1985 (Netherlands-Malta BIT) Agreement between the Government of the People’s Republic of China and the BelgianLuxembourg economic Union on the reciprocal Promotion and Protection of Investments, signed in Brussels, 4 June 1984, entered into force 5 October 1986 (BLEUChina BIT 1984) Agreement between the Government of the People’s Republic of China and the Government of the Republic of Singapore on the Promotion and Protection of investments, signed in Beijing, 21 November 1985, entered into force 7 February 1986 (ChinaSingapore BIT) Agreement between the Government of the Republic of Kazakhstan, on the one Hand and the Belgo-Luxemburg Economic Union, on the other Hand on the reciprocal promotion and protection of investments, signed in Almaty, 16 April 1998, entered into force 6 February 2001 (BLEU-Kazakhstan BIT) Agreement between the Government of the Republic of Austria and the Government of the Republic of Armenia for the Promotion and Protection of Investments, signed in Jerewan, 17 October 2001, entered into force 1 February 2003 (Austria-Armenia BIT)

350

Index of treaties Agreement between the Government of the Republic of Austria and the Government of the Republic of India for the promotion and protection of investments, signed in Vienna, 8 November 1999, entered into force 1 March 2001 (Austria-India BIT) Agreement between the Government of the Republic of Croatia and the Government of the Republic of India on the Promotion and Reciprocal Protection of Investments, signed in New Delhi, 4 May 2001, entered into force 19 January 2002 (Croatia-India BIT) Agreement between the Government of the Republic of Croatia and the Government of the Republic of India on the Promotion and Reciprocal Protection of Investments, signed in New Delhi, 4 May 2001, entered into force 19 January 2002 (India-Croatia BIT) Agreement between the Government of the Republic of Finland and the Government of the Federal Republic of Nigeria on the Promotion and Protection of Investments, signed in Helsinki, 22 June 2005, entered into force 20 March 2007 (Finland-Nigeria BIT) Agreement between the Government of the Republic of Finland and the Government of the Kyrgyz Republic on the Promotion and Protection of Investments, signed in Helsinki, 3 April 2003, entered into force 8 December 2004 (Finland-Kyrgyzstan BIT) Agreement between the Government of the Republic of Finland and the Government of the People’s Republic of China on the Encouragement and reciprocal Protection of Investments, signed in Beijing, 15 November 2004, entered into force 15 November 2006 (China-Finland BIT) Agreement between the Government of the Republic of Finland and the Government of the Republic of Albania on the Promotion and Protection of Investments, signed in Helsinki, 24 June 1997, entered into force 20 February 1999 (Finland-Albania BIT) Agreement between the Government of the Republic of Finland and the Government of the Republic of Belarus on the Promotion and Protection of Investments, signed in Minsk, 8 June 2006, entered into force 10 April 2008 (Finland-Belarus BIT) Agreement between the Government of the Republic of Finland and the Government of the Republic of Guatemala on the Promotion and Protection of Investments, signed in Helsinki, 12 April 2005, entered into force 6 January 2007 (Finland-Guatemala BIT) Agreement between the Government of the Republic of Hungary and the Government of the Russian Federation for the Promotion and the Reciprocal Protection of Investments, signed in Moscow, 6 March 1995, entered into force 29 May 1996 (HungaryRussia BIT) Agreement between the Government of the Republic of India and the Government of the Republic of Slovenia on the mutual Promotion and Protection of investments, signed in New Delhi, 14 June 2011, not in force (Slovenia-India BIT) Agreement between the Government of the Republic of Indonesia and the Government of the Kingdom of Morocco for the Promotion and Protection of Investments, signed in Jakarta, 14 March 1997, entered into force 21 March 2002 (Morocco-Indonesia BIT)

351

Index of treaties Agreement between the Government of the Republic of Indonesia and the Government of the Republic of India for the Promotion and Protection of Investments, signed in Montego Bay, 8 February 1999, entered into force 22 January 2004 (India-Indonesia BIT) Agreement between the Government of the Republic of Korea and the Government of Japan for the Liberalisation, Promotion and Protection of Investment, signed in Seoul, 22 March 2002, entered into force 1 January 2003 (Japan-Korea BIT) Agreement between the Government of the Republic of Korea and the Government of the Kingdom of Saudi Arabia concerning the Reciprocal Encouragement and Protection of Investments, signed in Seoul, 4 April 2002, entered into force 19 February 2003 (Saudi Arabia-Korea BIT) Agreement between the Government of the Republic of Malta and the Government of the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments, signed in Valletta, 4 October 1986, entered into force 4 October 1986 (UK-Malta BIT) Agreement between the Government of the Republic of Mauritius and the Government of the Republic of Singapore for the Promotion and Protection of Investments, signed in Singapore, 4 March 2000, entered into force 19 April 2000 (Mauritius-Singapore BIT) Agreement between the Government of the Republic of Mauritius and the Government of the Republic of South Africa for the Promotion and Reciprocal Protection of Investments, signed in Cape Town, 17 February 1998, entered into force 7 October 1998 (South Africa-Mauritius BIT) Agreement between the Government of the Republic of Singapore and the Government of the Republic of Peru on the Promotion and Protection of Investments, signed in Singapore, 27 February 2003, not in force (Singapore-Peru BIT) Agreement between the Government of the Republic of South Africa and the Government of the Republic of Zimbabwe for the Promotion and Reciprocal Protection of Investments, signed in Harare, 27 November 2009, not in force (South Africa-Zimbabwe BIT) Agreement between the Government of the Socialist Republic of Vietnam and the Government of the Republic of Singapore on the Promotion and Protection of Investments, signed in Singapore, 29 October 1992, entered into force 25 December 1992 (Singapore-Vietnam BIT) Agreement between the Government of the Sultanate of Oman and the Government of the Republic of India for the Promotion and Protection of Investments, signed in New Delhi, 2 April 1997, entered into force 13 October 2000 (India-Oman BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and his Majesty’s Government of Nepal for the Promotion and Protection of Investments, signed in Kathmandu, 2 March 1993, entered into force 2 March 1993 (UK-Nepal BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Federal Democratic Republic of Ethiopia for the Promotion and Protection of Investments, signed in Addis Ababa, 19 November 2009, not in force (UK-Ethiopia BIT)

352

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Antigua and Barbuda for the Promotion and Protection of Investments, signed in St. Johns, 12 June 1987, entered into force 12 June 1987 (UK-Antigua and Barbuda BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Barbados for the Promotion and Protection of Investments, signed in Bridgetown, 7 April 1993, entered into force 7 April 1993 (UKBarbados BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Belize for the Promotion and Protection of Investments, signed in Belmopan, 30 April 1982, entered into force 30 April 1982 (UKBelize BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Grenada for the Promotion and Protection of Investments, signed in London, 25 February 1988, entered into force 25 February 1988 (UK-Grenada BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Jamaica for the promotion and protection of investments, signed in Kingston, 20 January 1987, entered into force 14 May 1987 (UKJamaica BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Mauritius for the Promotion and Protection of Investments, signed in Port Louis, 20 May 1986, entered into force 13 October 1986 (UK-Mauritius BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Saint Lucia for the Promotion and Protection of Investments, signed in Castries, 18 January 1983, entered into force 18 January 1983 (UK-Saint Lucia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Arab Republic of Egypt for the Promotion and Protection of Investments, signed in London, 11 June 1975, entered into force 24 February 1976 (UK-Egypt BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Azerbaijan Republic for the Promotion and Protection of Investments, signed in Baku, 4 January 1996, entered into force 11 December 1996 (UK-Azerbaijan BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Commonwealth of Dominica for the promotion and protection of investments, signed in Roseau, 23 January 1987, entered into force 23 January 1987 (UK-Dominica BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Co-operative Republic Guyana for the Promotion and Protection of Investments, signed in London, 27 October 1989, entered into force 11 April 1990 (UK-Guyana BIT)

353

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Democratic Socialist Republic of Sri Lanka for the promotion and protection of investments, signed in Colombo, 13 February 1980, entered into force 18 December 1980 (UK-Sri Lanka BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Hashemite Kingdom of Jordan for the promotion and protection of investments, signed in Amman, 10 October 1979, entered into force 24 April 1980 (UK-Jordan BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Hungarian People’s Republic for the promotion and reciprocal protection of investments, signed in Budapest, 9 March 1987, entered into force 28 August 1987 (UK-Hungary BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Islamic Republic of Pakistan for the Promotion and Protection of Investments, signed in London, 30 November 1994, entered into force 30 November 1994 (UK-Pakistan BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Morocco for the promotion and protection of investments, signed in Rabat, 30 October 1990, entered into force 14 February 2002 (UK-Morocco BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Swaziland for the promotion and protection of investments, signed in London, 5 May 1995, entered into force 5 May 1995 (UK-Swaziland BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Tonga for the promotion and protection of investments, signed in London, 22 October 1997, entered into force 22 October 1997 (UK-Tonga BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kyrgyz Republic for the Promotion and Protection of Investments, signed in London, 8 December 1994, entered into force 18 June 1998 (UK-Kyrgyzstan BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Lao People’s Democratic Republic for the Promotion and Protection of Investments, signed in Vientianc, 1 June 1995, entered into force 1 June 1995 (UK-Laos BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Lebanese Republic for the promotion and reciprocal protection of investments, signed in Beirut, 16 February 1999, entered into force 16 September 2001 (UK-Lebanon BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Mongolian People’s Republic for the Promotion and Protection of Investments, signed in Ulan Bator, 4 October 1991, entered into force 4 October 1991 (UK-Mongolia BIT)

354

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Oriental Republic of Uruguay for the promotion and protection of investments, signed in London, 21 October 1991, entered into force 1 August 1997 (UK-Uruguay BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of Bangladesh for the Promotion and Protection of Investments, signed in London, 19 June 1980, entered into force 19 June 1980 (UK-Bangladesh BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of Benin for the Promotion and Protection of Investments, signed in Cotonou, 27 November 1987, entered into force 27 November 1987 (UK-Benin BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China concerning the promotion and reciprocal protection of investments, signed in London, 15 May 1986, entered into force 16 May 1986 (UK-China BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of the Congo for the Promotion and Protection of Investments, signed in London, 25 May 1989, entered into force 9 November 1990 (UK-Congo BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Polish People’s Republic for the Promotion and Reciprocal Protection of Investments, signed in London, 8 December 1987, entered into force 14 April 1988 (UK-Poland BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Croatia for the Promotion and Protection of Investments, signed in London, 11 March 1997, entered into force 16 April 1998 (UK-Croatia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Albania for the Promotion and Protection of Investments, signed in London, 30 March 1994, entered into force 30 August 1995 (UK-Albania BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the promotion and protection of investments, signed in London, 11 December 1990, entered into force 19 February 1993 (UK-Argentina BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Armenia for the Promotion and Protection of Investments, signed in London, 27 May 1993, entered into force 11 July 1996 (UK-Armenia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Belarus for the Promotion and Protection of Investments, signed in London, 1 March 1994, entered into force 28 December 1994 (UK-Belarus BIT)

355

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Bolivia for the Promotion and Protection of Investments, signed in La Paz, 24 May 1988, entered into force 16 February 1990 (UK-Bolivia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Bulgaria for the promotion and reciprocal protection of investments, signed in London, 11 December 1995, entered into force 24 June 1997 (UK-Bulgaria BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Burundi for the Promotion and Protection of Investments, signed in London, 13 September 1990, entered into force 13 September 1990 (UK-Burundi BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Chile for the promotion and protection of investments, signed in Santiago, 8 January 1996, entered into force 21 April 1997 (UK-Chile BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Côte d’Ivoire for the Promotion and Protection of Investments, signed in London, 8 June 1995, entered into force 9 October 1997 (UK-Côte d’Ivoire BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Cuba for the Promotion and Protection of Investments, signed in London, 30 January 1995, entered into force 11 May 1995 (UK-Cuba BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Ecuador for the Promotion and Protection of Investments, signed in Quito, 10 May 1994, entered into force 24 August 1995 (UK-Ecuador BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of El Salvador for the Promotion and Protection of Investments, signed in London, 14 October 1999, entered into force 1 December 2000 (UK-El Salvador BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Estonia for the Promotion and Protection of Investments, signed in London, 12 May 1994, entered into force 16 December 1994 (UK-Estonia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Georgia for the Promotion and Protection of Investments, signed in London, 15 February 1995, entered into force 15 February 1995 (UK-Georgia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Ghana for the promotion and protection of investments, signed in Accra, 22 March 1989, entered into force 25 October 1991 (UK-Ghana BIT)

356

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Haiti for the Promotion and Protection of Investments, signed in Port-au-Prince, 18 March 1985, entered into force 27 March 1995 (UK-Haiti BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Honduras for the Promotion and Protection of Investments, signed in Tegucigalpa, 7 December 1993, entered into force 8 March 1995 (UK-Honduras BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the promotion and protection of investments, signed London, 14 March 1994, entered into force 6 January 1995 (UK-India BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Kazakhstan for the Promotion and Protection of Investments, signed in London, 23 November 1995, entered into force 23 November 1995 (UK-Kazakhstan BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Latvia for the Promotion and Protection of Investments, signed in London, 24 January 1994, entered into force 15 February 1995 (UK-Latvia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Lithuania for the Promotion and Protection of Investments, signed in Vilnius, 17 May 1993, entered into force 21 September 1993 (UK-Lithuania BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Moldova for the Promotion and Protection of Investments, signed in London, 19 March 1996, entered into force 30 July 1998 (UK-Moldova BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Nicaragua for the Promotion and Protection of Investments, signed in Managua, 4 December 1996, entered into force 21 December 2001 (UK-Nicaragua BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Panama for the promotion and protection of investments, signed in Panama City, 7 October 1983, entered into force 7 November 1985 (UK-Panama BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Paraguay for the promotion and protection of investments, signed in London, 4 June 1981, entered into force 23 April 1992 (UK-Paraguay BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Peru for the promotion and protection of investments, signed in London, 4 October 1993, entered into force 21 April 1994 (UK-Peru BIT)

357

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Senegal for the promotion and protection of investments, signed in London, 7 May 1980, entered into force 9 February 1984 (UK-Senegal BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Slovenia for the promotion and protection of investments, signed in Ljubljana, 3 July 1996, entered into force 12 May 1999 (UK-Slovenia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of South Africa for the promotion and protection of investments, signed in Cape Town, 20 September 1994, entered into force 27 May 1998 (UK-South Africa BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of the Czech and Slovak Federal Republic for the Promotion and Protection of Investments, signed in Prague, 10 July 1990, amended 23 August 1991 and 24 October 1991, entered into force on 26 October 1992 (UK-Czech Republic BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Trinidad and Tobago for the promotion and protection of investments, signed in Port of Spain, 23 July 1993, entered into force 8 October 1993 (UK-Trinidad and Tobago BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Turkey for the promotion and protection of investments, signed in London 15 March 1991, entered into force 22 October 1996 (UK-Turkey BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Uganda for the promotion and protection of investments, signed in Kampala, 24 April 1998, entered into force 24 April 1998 (UK-Uganda BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Venezuela for the promotion and protection of investments, signed in London, 15 March 1995, entered into force 1 August 1996 (UK-Venezuela BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Socialist Republic of Romania for the promotion and reciprocal protection of investment, signed in London, 13 July 1995, entered into force 10 January 1996 (UK-Romania BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the State of Bahrain for the Promotion and Protection of Investments, signed in Manama, 30 October 1991, entered into force 30 October 1991 (UK-Bahrain BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Sultanate of Oman for the promotion and protection of investments, signed in Muscat, 25 November 1995, entered into force 21 May 1996 (UK-Oman BIT)

358

Index of treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Tunisian Republic for the promotion and protection of investments, signed in Tunis, 14 March 1989, entered into force 4 January 1990 (UK-Tunisia BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Arab Emirates for the promotion and protection of investments, signed in Dubai, 8 December 1992, entered into force 15 December 1993 (UK-United Arab Emirates BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Reciprocal Protection of Investments, signed in Vienna, 12 May 2006, entered into force 25 July 2007 (UK-Mexico BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Republic of Cameroon for the Promotion and Protection of Investments, signed in Yaounde, 4 June 1982, entered into force 7 June 1985 (UK-Cameroon BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Republic of Tanzania for the Promotion and Protection of Investments, signed in Dar es Salaam, 7 January 1994, entered into force 2 Aug 1996 (UK-Tanzania BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Yemen Arab Republic for the Promotion and Protection of Investments, signed in Sana'a, 25 February 1982, entered into force 11 November 1983 (UK-Yemen BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Turkmenistan for the promotion and protection of investments, signed in Ashgabat, 9 February 1995, entered into force 9 February 1995 (UK-Turkmenistan BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ukraine for the promotion and reciprocal protection of investments, signed in London, 10 February 1993, entered into force 10 February 1993 (UK-Ukraine BIT) Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Republic of the Philippines for the promotion and protection of investments, signed London, 3 December 1980, entered into force 2 January 1981 (UK-Philippines BIT) Agreement between the Islamic Republic Pakistan and the Federal Republic of Germany on the Encouragement and Reciprocal Protection of Investments, signed in Berlin, 1 December 2009, not in force (Germany-Pakistan BIT 2009) Agreement between the Kingdom of Saudi Arabia and the Belgo-Luxembourg economic Union concerning the reciprocal Promotion and Protection of Investments, signed in Jeddah, 22 April 2001, entered into force 11 June 2004 (BLEU-Saudi Arabia BIT) Agreement between the Kingdom of Spain and the Syrian Arab Republic on the Promotion and Reciprocal Protection of Investments, signed in Damascus, 20 October 2003, entered into force 14 December 2004 (Spain-Syria BIT)

359

Index of treaties Agreement between the Kingdom of Sweden and the Republic of South Africa on the Promotion and Reciprocal Protection of Investments, signed in Stockholm, 25 May 1998, entered into force 1 January 1999 (Sweden-South Africa BIT) Agreement between the Kingdom of the Netherlands and the Democratic Socialist Republic of Sri Lanka for the promotion and protection of investments, signed in Colombo, 26 April 1984, entered into force 1 May 1985 (Netherlands-Sri Lanka BIT) Agreement between the Kingdom of the Netherlands and the Hungarian People’s Republic for the encouragement and reciprocal protection of investments, signed in Budapest, 2 September 1987, entered into force 1 June 1988 (Netherlands-Hungary BIT) Agreement between the Kingdom of the Netherlands and the Republic of Poland on encouragement and reciprocal protection of investments, signed in Warsaw, 7 September 1992, entered into force 1 February 1994 (Netherlands-Poland BIT) Agreement between the Republic of Austria and Georgia for the Promotion and Protection of Investments, signed in Tbilisi, 18 October 2001, entered into force 1 March 2004 (Austria-Georgia BIT) Agreement between the Republic of Austria and the Federal Democratic Republic of Ethiopia for the Promotion and Protection of Investments, signed in Vienna, 12 November 2004, entered into force 1 November 2005 (Austria-Ethiopia BIT) Agreement between the Republic of Austria and the Great Socialist People’s Libyan Arab Jamahiriya for the Promotion and Protection of Investments, signed in Vienna, 18 June 2002, entered into force 1 January 2004 (Austra-Libya BIT) Agreement between the Republic of Austria and the Kingdom of Cambodia for the Promotion and Protection of Investments, signed in Phnom Penh, 17 December 2004, not in force (Austria-Cambodia BIT) Agreement between the Republic of Austria and the Kingdom of Saudi-Arabia concerning the Encouragement and the Reciprocal Protection of Investments, signed in Riyadh, 30 June 2001, entered into force 25 July 2003 (Austria-Saudi Arabia BIT) Agreement between the Republic of Austria and the Republic of Namibia for the Promotion and Protection of Investments, signed in Windhoek, 27 May 2003, entered into force 1 September 2008 (Austria-Namibia BIT) Agreement between the Republic of Austria and the United Arab Emirates for the Promotion and Protection of Investments, signed in Dubai, 17 June 2001, entered into force 1 December 2003 (Austria-United Arab Emirates BIT) Agreement between The Republic of Zimbabwe and the Federal Republic of Germany concerning the Encouragement and the Reciprocal Protection of Investments, signed in Harare, 29 September 1995, entered into force 14 April 2000 (Germany-Zimbabwe BIT) Agreement between the Swiss Confederation and the United Mexican States on the Promotion and Reciprocal Protection of Investments, signed in Mexico City, 10 July 1995, entered into force 14 March 1996 (Mexico-Switzerland BIT) Agreement between the United Arab Emirates, on the one hand, and the Belgian-Luxemburg economic Union, on the other hand, on the reciprocal promotion and protection of investments, signed in Dubai, 8 March 2004, entered into force 10 November 2007 (BLEU-United Arab Emirates BIT)

360

Index of treaties Agreement between the United Kingdom of Great Britain and Northern Ireland and Bosnia and Herzegovina for the Promotion and Protection of Investments, signed in Blackpool, 2 October 2002, entered into force on 25 July 2003 (UK-Bosnia and Herzegovina BIT) Agreement between the United Mexican States and the Federal Republic of Germany on the Promotion and Reciprocal Protection of Investments, signed in Mexico City, 25 August 1998, entered into force 23 February 2001 (Germany-Mexico BIT) Agreement between the United Mexican States and the Republic of Austria on the Promotion and Protection of Investments, signed in Paris, 18 February 1998, entered into force 26 March 2001 (Austria-Mexico BIT) Agreement between the Arab Republic of Egypt and the Federal Republic of Germany concerning the Encouragement and the Reciprocal Protection of Investments, signed in Berlin, 16 June 2005, entered into force 22 November 2009 (Germany-Egypt BIT) Agreement between the Government of the Republic of Kazakhstan and Government of the Republic of India for the Promotion and Protection of Investments, signed in New Delhi, 9 December 1996, entered into force 26 July 2001 (India-Kazakhstan BIT) Agreement for the Promotion and Protection of Investments between the Government of the Kingdom of Spain and the United Mexican States, signed in Madrid, 10 October 2006, entered into force 4 April 2008 (Spain-Mexico BIT) Agreement for the Promotion and Protection of Investments between the Government of the Republic of Finland and the United Mexican States, signed in, 22 February 1999, entered into force 30 August 2000 (Finland-Mexico BIT) Agreement on encouragement and reciprocal protection of investments between the Government of the Kingdom of the Netherlands and the Government of Romania, signed in Bucharest, 19 April 1994, entered into force 1 February 1995 (NetherlandsRomania BIT) Agreement on encouragement and reciprocal protection of investments between the Government of the Kingdom of the Netherlands and the Government of the Republic of Lithuania, signed in ’s-Gravenhage, 26 January 1994, entered into force 1 April 1995 (Netherlands-Lithuania BIT) Agreement on encouragement and reciprocal protection of investments between the Government of the People’s Republic of China and the Government of the Kingdom of the Netherlands, signed in Beijing, 26 November 2001, entered into force 1 August 2004 (Netherlands-China BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and Jamaica, signed in Kingston, 18 April 1991, entered into force 1 August 1992 (Netherlands-Jamaica BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Argentine Republic, signed in Buenos Aires, 20 October 1992, entered into force 1 October 1994 (Netherlands-Argentina BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, signed in Prague, 29 April 1991, entered into force 1 October 1992 (Netherlands-Czech Republic BIT)

361

Index of treaties Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Hashemite Kingdom of Jordan, signed in Doha, 17 November 1997, entered into force 1 August 1998 (Netherlands-Jordan BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the People’s Republic of Bangladesh, signed in Dhaka, November 1994, entered into force 1 June 1996 (Netherlands-Bangladesh BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Bolivia, signed in La Paz, 10 March 1992, entered into force 1 November 1994 (Netherlands-Bolivia BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Bulgaria, signed in Sofia, 6 October 1999, entered into force 1 March 2001 (Netherlands-Bulgaria BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Estonia, signed in Tallinn, 27 October 1992, entered into force 1 September 1993 (Netherlands-Estonia BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Latvia, signed in The Hague, 14 March 1994, entered into force 1 April 1995 (Netherlands-Latvia BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Namibia, signed in Windhoek, 26 November 2002, entered into force 1 October 2004 (Netherlands-Namibia BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Peru, signed in Lima, 27 December 1994, entered into force 1 February 1996 (Netherlands-Peru BIT) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of South Africa, signed in Cape Town, 9 May 1995, entered into force 1 May 1999 (Netherlands-South Africa BIT) Agreement on encouragement and reciprocal protection of investments between the Republic of Slovenia and the Kingdom of the Netherlands, signed in Ljubljana, 24 September 1996, entered into force 1 August 1998 (Netherlands-Slovenia BIT) Agreement on encouragement and reciprocal protection of investments between the the Republic of Costa Rica and the Kingdom of the Netherlands, signed in The Hague, 21 May 1999, entered into force 1 July 2001 (Costa Rica-Netherlands BIT) Agreement on promotion, encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the United Mexican States, signed in Mexico City, 13 May 1998, entered into force 1 October 1999 (Netherlands-Mexico BIT) Agreement on recipocal protection and promotion of investments between the Government of the Republic of India and the Government of the Republic of Uzbekistan, signed in Tashkent, 18 May 1999, entered into force 28 July 2000 (India-Uzbekistan BIT)

362

Index of treaties Agreement on the Encouragement and Reciprocal Protection of Investments between the Government of the Republic of Korea and the Government of the People’s Republic of China (China-Korea BIT), signed in Beijing, 30 September 1992, entered into force 4 December 1992, replaced by a 2007 BIT (China-Korea BIT) Agreement on the Promotion and Reciprocal Protection of Investments between the Kingdom of Spain and the Republic of Uzbekistan, signed 28 January 2003, entered into force 3 December 2003 (Spain-Uzbekistan BIT) Agreement on the reciprocal promotion and protection of investments between the Kingdom of Spain and the Federal Republic of Nigeria, signed in Abuja, 9 July 2002, entered into force 19 January 2006 (Spain-Nigeria BIT) Agremeent between the Government of the Republic of India and the Government of the Republic of Lithuania for the Promotion and Protection of Investments, signed in Vilnius, 31 March 2011, entered into force 1 December 2011 (Lithuania-India BIT) Belgo-Luxembourg economic Union and United Republic of Cameroon – Convention concerning the reciprocal promotion and protection of investments, signed in Brussels, 27 March 1980, entered into force 1 November 1981 (BLEU-Cameroon BIT) Bilateral Agreement for the Promotion and Protection of Investments between the Government of the United Kingdom of Great Britain and Northern Ireland and the Republic of Colombia, signed in London, 19 May 2009, not in force (UK-Colombia BIT) Convenio entre el Gobierno de la República del Perú y el Gobierno de la República de Bolivia sobre promoción y protección recíproca de inversiones, signed in Ilo, 30 July 1993, entered into force 19 March 1995 (Bolivia-Peru BIT) Convenio entre el Gobierno de la República del Perú y el Gobierno de la República de Finlandia sobre Promoción y Protección de Inversiones, signed in Helsinki, 2 May 1995, entered into force 14 June 1996 (Finland-Peru BIT) Convenio entre la República Argentina y la Unión Económica Belgo-Luxemburguesa para la Promoción y la Protección recíproca de las Inversiones, signed in Brussels, 28 June 1990, entered into force 20 May 1994 (BLEU-Argentina BIT) Convenio entre la República del Perú y la República Federal de Alemania sobre Promoción y Protección Recíproca de Inversiones, signed in Lima, 30 January 1995, entered into force 1 May 1997 (Germany-Peru BIT) Convention entre le gouvernement de la République française et le gouvernement du royaume de Bahreïn sur l’encouragement et la protection réciproques des investissements, signed in Paris, 24 February 2004, entered into force 3 October 2005 (FranceBahrain BIT) Convention entre le gouvernement de la République française et le gouvernement du royaume hachémite de Jordanie sur l’encouragement et la protection réciproques des investissements, signed in Paris, 23 February 1978, entered into force 18 October 1979 (France-Jordan BIT) Denmark and Indonesia – Agreement concerning the encouragement and the reciprocal protection of investments (with protocol), signed in Jakarta, 30 January 1968, 2 July 1968 (Denmark-Indonesia BIT 1968)

363

Index of treaties Traité entre la République Démocratique du Congo et la République fédérale d´Allemagne relatif à l´encouragement et à la protection mutuelle des investissements de capitaux, signed in Bonn, 18 March 1969, entered into force 22 July 1971 (GermanyCongo BIT) Tratado entre la República Argentina y la República de Chile sobre promoción y protección recíproca de inversiones, signed in Buenos Aires, 2 August 1991, entered into force 1 January 1995 (Argentina-Chile BIT) Treaty [between the United States of America and] the Czech and Slovak Federal Republic concerning the reciprocal encouragement and protection of investment, signed in Washington, 22 October 1991, entered into force 19 February 1992 (US-Czech Republic BIT) Treaty between St. Lucia and the Federal Republic of Germany concerning the Encouragement and Reciprocal Protection of Investments, signed in Bridgetown, 16 March 1985, entered into force 22 July 1987 (Germany-Saint Lucia BIT) Treaty between the Federal Republic of Germany and Antigua and Barbuda concerning the Encouragement and the Reciprocal Protection of Investments, signed in London, 5 November 1998, entered into force 28 February 2001 (Germany-Antigua and Barbuda BIT) Treaty between the Federal Republic of Germany and Benin concerning the promotion and reciprocal protection of capital investment, signed in Cotonou, 29 June 1978, entered into force 18 July 1985 (Germany-Benin BIT) Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection of Investments, signed in Bonn, 25 November 1959, entered into force 28 April 1962 (Germany-Pakistan BIT 1959) Treaty between the Federal Republic of Germany and the Democratic Socialist Republic of Sri Lanka concerning the Promotion and mutual Protection of Investments, signed in Colombo, 7 February 2000, entered into force 16 January 2004 (Germany-Sri Lanka BIT) Treaty between the Federal Republic of Germany and the Federal Democratic Republic of Ethiopia concerning the Encouragement and Reciprocal Protection of Investments, signed in Addis Abeba, 19 January 2004, entered into force 4 May 2006 (GermanyEthiopia BIT) Treaty between the Federal Republic of Germany and the Republic of Bolivia concerning the promotion and mutual protection of investments, signed in La Paz, 23 March 1987, entered into force 9 November 1990 (Germany-Bolivia BIT) Treaty between the Federal Republic of Germany and the Republic of Botswana concerning the Encouragement and Reciprocal Protection of Investments, signed in Gaborone, 23 May 2000, entered into force 6 August 2007 (Germany-Botswana BIT) Treaty between the Federal Republic of Germany and the Republic of Kenya concerning the Encouragement and Reciprocal Protection of Investments, signed in Nairobi, 3 May 1996, entered into force 7 December 2000 (Germany-Kenya BIT) Treaty between the Federal Republic of Germany and the Republic of Mali concerning the promotion and reciprocal protection of capital investment, signed in Bonn, 28 June 1977, entered into force 16 May 1980 (Germany-Mali BIT)

364

Index of treaties Treaty between the Federal Republic of Germany and the Republic of Singapore concerning the Promotion and Reciprocal Protection of Investments, signed in Singapore, 3 October 1973, entered into force 1 October 1975 (Germany-Singapore BIT) Treaty between the Federal Republic of Germany and the Republic of Zambia concerning the Encouragement and Reciprocal Protection of Investments, signed in Lusaka, 10 December 1966, entered into force 25 August 1972 (Germany-Zambia BIT) Treaty between the Federal Republic of Germany and the State of Israel concerning the Encouragement and Reciprocal Protection of Investments, signed in Bonn, 24 June 1976, not in force (Germany-Israel BIT) Treaty between the Federal Republic of Germany and the Sultanate of Oman concerning the Encouragement and the Reciprocal Protection of Investments, signed in Muscat, 20 May 2007, entered into force 4 April 2010 (Germany-Oman BIT) Treaty Between the Government of the United States of America and Grenada concerning the Encouragement and Protection of Investment, signed in Washington, 2 May 1986, entered into force 3 March 1989 (US-Grenada BIT) Treaty between the Government of the United States of America and the Government of Mozambique concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 1 December 1998, entered into force 3 March 2005 (USMozambique BIT) Treaty between the Government of the United States of America and the Government of the People’s Republic of the Congo concerning the Reciprocal Encouragement and Protection of Investment, signed in Washington, 12 February 1990, entered into force 13 August 1994 (US-Congo BIT) Treaty between the Government of the United States of America and the Government of the Republic of Albania concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 11 January 1995, entered into force 4 January 1998 (US-Albania BIT) Treaty between the Government of the United States of America and the Government of the Republic of Azerbaijan concerning the Encouragement and Reciprocal Protection of investment, signed in Washington, 1 August 1997, entered into force 2 August 2001 (US-Azerbaijan BIT) Treaty between the Government of the United States of America and the Government of the Republic of Bolivia concerning the Encouragement and Reciprocal Protection of investment, signed in Santiago, 17 April 1998, entered into force 6 June 2001, terminated 10 June 2011 (US-Bolivia BIT) Treaty between the Government of the United States of America and the Government of the Republic of Croatia concerning the Encouragement and Reciprocal Protection of Investment, signed in Zagreb, 13 July 1996, entered into force 20 June 2001 (USCroatia BIT) Treaty between the Government of the United States of America and the Government of the Republic of El Salvador concerning the Encouragement and Reciprocal Protection of Investment, signed in San Salvador, 10 March 1999, not in force (US-El Salvador BIT)

365

Index of treaties Treaty Between the Government of the United States of America and the Government of the Republic of Estonia for the Encouragement and Reciprocal Protection of Investment, signed in Washington, 19 April 1994, entered into force 16 February 1997 (US-Estonia BIT) Treaty between the Government of the United States of America and the Government of the Republic of Georgia concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 7 March 1994, entered into force 17 August 1997 (US-Georgia BIT) Treaty between the Government of the United States of America and the Government of the Republic of Lithuania for the Encouragement and Reciprocal Protection of Investment, signed in Washington, 14 January 1998, entered into force 22 November 2001, amended 1 May 2004 (US-Lithuania BIT) Treaty between the Government of the United States of America and the Government of the Republic of Rwanda concerning the Encouragement and Reciprocal Protection of Investment, signed in Kigali, 14 February 2008, entered into force 1 January 2012 (US-Rwanda BIT) Treaty between the Government of the United States of America and the Government of the State of Bahrain concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 29 September 1999, entered into force 30 May 2001 (US-Bahrain BIT) Treaty Between the Government of the United States of America and the Republic of Senegal concerning the Reciprocal Encouragement and Protection of Investment, signed in Washington, 6 December 1983, entered into force 25 October 1990 (USSenegal BIT) Treaty between the Government of the United States of America and the Government of the Republic of Honduras concerning the Encouragement and the Reciprocal Protection of Investment, signed in Denver, 1 July 1995, entered into force 11 July 2001 (US‑Honduras BIT) Treaty between the Independent State of of Papua New Guinea and the Federal Republic of Germany concerning the Encouragement and the Reciprocal Protection of Investments, signed in Moresby, 12 November 1980, entered into force 3 November 1983 (Germany-Papua New Guinea BIT) Treaty between the Kingdom of Thailand and the Federal Republic of Germany concerning the Encouragement and Reciprocal Protection of Investments, signed in Bangkok, 24 June 2002, entered into force 20 October 2004 (Germany-Thailand BIT) Treaty between the United States of America and Jamaica concerning the Reciprocal Encouragement and Protection of Investment, signed in Washington, 4 February 1994, entered into force 7 March 1997 (US-Jamaica BIT) Treaty between the United States of America and Mongolia concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 6 October 1994, entered into force 4 January 1997 (US-Mongolia BIT) Treaty between the United States of America and the Arab Republic of Egypt concerning the Reciprocal Encouragement and Protection of Investments, signed in Washington, 11 March 1986, entered into force, 27 June 1992 (US-Egypt BIT)

366

Index of treaties Treaty between the United States of America and the Argentine Republic concerning the Reciprocal Encouragement and Protection of Investment, signed in Washington, 14 November 1991, entered into force 20 October 1994 (US-Argentina BIT) Treaty between the United States of America and the Democratic Socialist Republic of Sri Lanka concerning the Encouragement and Reciprocal Protection of Investment, signed in Colombo, 20 September 1991, entered into force 1 May 1993 (US-Sri Lanka BIT) Treaty between the United States of America and the Oriental Republic of Uruguay concerning the encouragement and reciprocal protection of investment, signed in Mar del Plata, 4 November 2005, entered into force 1 November 2006 (US-Uruguay BIT) Treaty between the United States of America and the Republic of Bulgaria concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 23 September 1992, entered into force 2 June 1994 (US-Bulgaria BIT) Treaty between the United States of America and the Russian Federation concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 17 June 1992, not in force (US-Russia BIT) Treaty between the United States of America and Ukraine concerning the Encouragement and Reciprocal Protection of Investment, signed in Washington, 14 March 1994, entered into force 16 November 1996 (US-Ukraine BIT) Treaty concerning the Encouragement and Reciprocal Protection of Investments, signed in Bonn, 10 September 1984, entered into force 9 December 1987 (Germany-Burundi BIT) Treaty concerning the encouragement and reciprocal protection of investments, signed in Maseru, 11 November 1982, entered into force 17 August 1985 (Germany-Lesotho BIT) Treaty concerning the Encouragement and Reciprocal Protection of Investments, signed in Warsaw, 10 November 1989, entered into force 24 February 1991 (Germany-Poland BIT) Treaty concerning the promotion and reciprocal protection of capital investment, signed in Port-au-Prince, 14 August 1973, entered into force 1 December 1975 (GermanyHaiti BIT) Vertrag zwischen der Bundesrepublik Deutschland und dem Königreich Griechenland über die Förderung und den gegenseitigen Schutz von Kapitalanlagen, signed in Athens, 27 March 1961, entered into force 15 July 1963 (Germany-Greece BIT) Other international investment agreements Acuerdo de Integración Comercial entre los Estados Unidos Mexicanos y la República del Perú, signed in Lima, 6 April 2011, entered into force 1 February 2012 (MexicoPeru FTA) Acuerdo de Libre Comercio entre el Gobierno de la República del Perú y el Gobierno de la República de Chile, signed in Lima, 22 August 2006, entered into force 1 March 2009 (MINCETUR) (Chile-Peru FTA)

367

Index of treaties Agreement among the Government of Japan, the Government of the Republic of Korea and the Government of the People’s Republic of China for the Promotion, Facilitation and Protection of Investment (Japan-Korea-China investment agreement) signed in Beijing, 13 May 2012, not in force (Japan-Korea-China Investment Agreement) Agreement between Japan and the Republic of Indonesia for an Economic Partnership, signed in Jakarta, 20 August 2007, entered into force 1 July 2008 (Indonesia-Japan EPA) Agreement between Japan and the Republic of Singapore for an New-Age Economic Partnership, signed in Singapore, 13 January 2002, entered into force 30 November 2002 (Japan-Singapore EPA) Agreement between Japan and the Republic of Switzerland for an Economic Partnership, signed in Tokyo, 19 February 2009, entered into force 1 September 2009 (JapanSwitzerland EPA) Agreement between Japan and the Republic of the Philippines for an Economic Partnership, signed in Helsinki, 9 September 2006, entered into force 11 December 2008 (Japan-Philippines EPA) Agreement establishing the ASEAN-Australian-New Zealand Free Trade Area, signed in Cha-am, 27 February 2009, entered into force 1 January 2010/11/12 (AANZFTA) Agreement on bilateral cooperation between the Government of Australia and the Government of the Kingdom of Thailand, signed in Canberra, 5 July 2004, entered into force 1 January 2005 (Australia-Thailand FTA) ASEAN Comprehensive Investment Agreement, signed in Cha-am, adopted 26 February 2009, entered into force 29 March 2012 (ASEAN CIA) Canada-Chile Free Trade Agreement, signed in Santiago, 5 December 1996, entered into force 5 July 1997 (Canada-Chile FTA) Canada-Colombia Free Trade Agreement, signed in Lima, 21 November 2008, entered into force 15 August 2011 (Canada-Colombia FTA) Canada-Peru Free Trade Agreement, signed in Lima, 29 May 2008, entered into force 1 August 2009 (Canada-Peru FTA) Central America-Dominican Republic-United States Free Trade Agreement, signed in Washington D.C., 5 August 2004, entered into force on different dates in 2006, 2007 and 2009 (US-DR-CAFTA) Chile-Australia Free Trade Agreement, signed in Canberra, 30 July 2008, entered into force 6 March 2009 (Australia-Chile FTA) Chile-US Free Trade Agreement, signed in Miami, 6 June 2003, entered into force 1 January 2004 (US-Chile FTA) China-Peru Free Trade Agreement, signed in Beijing, 28 April 2009, entered into force 1 March 2010 (China-Peru FTA) Colombia-United States Trade Promotion Agreement, signed in Washington D.C., 22 November 2006, entered into force 15 May 2012 (US-Colombia FTA) Comprehensive Economic Partnership Agreement between Japan and the Republic of India, signed in Tokyo, 16 February 2011, not entered into force yet (Japan-India CEPA)

368

Index of treaties EFTA-Hong Kong Free Trade Agreement, signed in Schaan 21 June 2011, entered into force 1 October and 1 November 2012 (EFTA-Hong Kong FTA) Framework Agreement on Comprehensive Economic Cooperation among the governments of the Republic of Korea and the Member Countries of the Association of Southeast Asian Nations, signed in Jeju-do, 2 June 2009, entered into force 2 September 2009 (ASEAN-Korea FTA) Framework Agreement on Comprehensive Economic Cooperation Between the Association of South East Asian Nations and the People’s Republic of China, signed in Bangkok, 15 August 2009, entered into force 1 January 2010 (ASEAN-China Investment Agreement) Framework Agreement on the ASEAN Investment Area, signed in Makati, 7 October 1998, entered into force 25 May 1999 (ASEAN AIA) Free Trade Agreement between the EFTA States and Singapore, signed in Egilsstadir, 26 June 2002, entered into force 1 January 2003 (EFTA-Singapore FTA) Free Trade Agreement between the EFTA States and Ukraine, signed in Reykjavik, 24 June 2010, entered into force 1 June 2012 (EFTA-Ukraine FTA) Free Trade Agreement between the Government of Australia and the Government of the Republic of Singapore, signed in Singapore, 17 February 2003, entered into force 28 July 2003 (SAFTA) Free Trade Agreement Between the Government of Canada and the Government of the Republic of Costa Rica, signed in Ottawa, 23 April 2001, entered into force 1 November 2002 (Canada-Costa Rica FTA) Free Trade Agreement between the Government of Canada and the Government of the United States of America, signed in Palm Springs, 2 January 1988, entered into force 9 September 1988 (Canada-US FTA) Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China, signed in Beijing, 7 April 2008, entered into force 1 October 2008 (China-New Zealand FTA) Free Trade Agreement between the Republic of Singapore and the Republic of Panama, signed in Singapore, 1 March 2006, entered into force 24 July 2006 (Panama-Singapore FTA) India-Korea Comprehensive Economic Partnership Agreement, signed in New Delhi, 7 August 2009, entered into force 1 January 2010 (India-Korea CEPA) India-Singapore Comprehensive Economic Cooperation Agreement, signed in New Delhi, 29 June 2005, entered into force 1 August 2005 (India-Singapore CECA) Investment Agreement for the COMESA Common Investment Area, adopted in Nairobi, 22 and 23 May 2007 (COMESA CIA) Mexico-Nicaragua Free Trade Agreement, signed in Managua, 18 December 1997, entered into force 1 July 1998, replaced (Mexico-Nicaragua FTA) North American Free Trade Agreement, signed in San Antonio, 17 December 1992, entered into force 1 January 1994 (1993) (NAFTA) Peru-United States Trade Promotion Agreement, signed in Washington D.C., 12 April 2006, entered into force 1 February 2009 (US-Peru TPA)

369

Index of treaties Singapore-Australia Free Trade Agreement (SAFTA) between the Government of Australia and the Government of the Republic of Singapore, signed in Singapore, 17 February 2003, entered into force 28 July 2003 (Australia-Singapore FTA) Tratado de Libre Comercio entre el Gobierno de la República de Chile y el Gobierno de los Estados Unidos Mexicanos, signed in Santiago, 17 April 1998, entered into force on 1 August 1999 (Mexico-Chile FTA) Tratado de libre comercio entre los Estados Unidos Mexicanos y las Repúblicas de Costa Rica, El Salvador, Guatemala, Honduras y Nicaragua, signed in San Salvador, 22 November 2011, entered into force for Honduras 1.1.2013 (Mexico-Central America FTA) Tratado de Libre Comercio entre los Estados Unidos Mexicanos y la República Oriental del Uruguay, signed in Santa Cruz de la Sierra, 15. November 2003, entered into force 15. July 2004 (Mexico-Uruguay FTA) United States-Australia Free Trade Agreement, signed in Washington D.C., 18 May 2004, entered into force 1 January 2005 (AUSFTA) United States-Morocco Free Trade Agreement, signed in Washington D.C., 15 June 15 2004, entered into force 1 January 2006 (US-Morocco FTA) United States-Morocco Free Trade Agreement, signed in Washington, DC., 15 June 2004, entered into force 1 January 2006 (US-Morocco FTA) United States-Oman Free Trade Agreement, signed in Washington D.C., 19 January 2006, entered into force 1 January 2009 (US-Oman FTA) United States-Panama Trade Promotion Agreement, signed in Washington D.C., 28 June 2007, entered into force 31 October 2012 (US-Panama TPA) United States-Singapore Free Trade Agreement, signed in Washington D.C., 6 May 2003, entered into force 1 January 2004 (US-Singapore FTA) Model bilateral investment treaties [Draft] Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of... for the Promotion and Protection of Investments, copy obtained from the British Government (UK Model BIT 2008) Accord entre le Gouvernement de la République française et le Gouvernement de... sur encouragement et la protection réciproques des investissements, available in Dolzer, R. and Schreuer, C. (2008), Principles of International Investment Law, NY: OUP (French Model BIT 2006) Agreement between the Government of the Kingdom of Sweden and the Government of... on the Promotion and Reciprocal Protection of Investments, copy obtained from the Swedish Government (Swedish Model BIT 2003) Agreement between Canada and... for the Promotion and Protection of Investments http:// www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/2004fipa-model-en.pdf (Canadian Model BIT 2004) Agreement between Canada and... For the Promotion and Protection of Investments, copy obtained from the Canadian Government (Canadian Model BIT 2012)

370

Index of treaties Agreement between the Belgium-Luxembourg Economic Union, on the one hand, and..., on the other hand, on the reciprocal promotion and protection of investments, copy on hold with the author (BLEU Model BIT 2002) Agreement between the Government of the Republic of Finland and the Government of... on the promotion and protection of investments http://unctad.org/sections/dite/iia/ docs/Compendium/en/200%20volume%207.pdf (Finnish Model BIT 2002) Agreement between the Government of the Republic of India and... For the Promotion and Protection of Investments http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/Indian%20Model%20Text%20BIPA.asp (Indian Model BIT 2003) Agreement between the Kingdom of Norway and... For the Promotion and Protection of Investments, Draft version 191207 italaw.com/documents/NorwayModel2007.doc (Norwegian Draft Model BIT 2007) Agreement between the Republic of Austria and the... for the promotion and protection of investments http://unctad.org/sections/dite/iia/docs/Compendium/en/197%20volume%207.pdf (Austrian Model BIT 2002) Agreement for the Promotion and Protection of Investment between the Republic of Austria and..., copy obtained from the Austrian Government (Austrian Model BIT 2011) Agreement on encouragement and reciprocal protection of investments between... and the Kingdom of the Netherlands, copy obtained from the Dutch Government (Dutch Model BIT 2004) Bilateral Agreement for the Promotion and Protection of Investments between the Republic of Colombia and..., http://italaw.com/documents/inv_model_bit_colombia.pdf (Colombian Model BIT 2007) Draft Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of... for the Promotion and Protection of Investments, available in Dolzer, R. and Schreuer, C. (2008), Principles of International Investment Law. NY: OUP (UK Model BIT 2005) Southern African Development Community Model Bilateral Investment Treaty Template http://www.iisd.org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-TemplateFinal.pdf (SADC Model BIT 2012) Treaty between the Federal Republic of Germany and... Concerning the Encouragement and Reciprocal Protection of Investments, copy on hold with the author (German Model BIT 2009) Treaty between the Government of the United States of America and the Government of [Country] concerning the Encouragement and Reciprocal Protection of Investment http://www.state.gov/documents/organization/117601.pdf (US Model BIT 2004) Treaty between the Government of the United States of America and the Government of [Country] concerning the Encouragement and Reciprocal Protection of Investment http://www.ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf (US Model BIT 2012)

371

Index of treaties Friendship, commerce and navigation treaties Treaty of Amity and Commerce Between the United States and France, signed in Paris, 6 February 1778, source: http://avalon.law.yale.edu/ Treaty of Amity, Commerce and Navigation between his Britannick Majesty and the United States of America, signed in London, 19 November 1794 (Jay Treaty), source: http://avalon.law.yale.edu/ Treaty of Commerce and Navigation Between Austria-Hungary and the United States, signed in Washington, D.C., 27 August 1829, source: http://avalon.law.yale.edu/ Treaty of Commerce and Navigation between Belgium and the United States, signed in Washington, D.C., 8 March 1875 (Belgium-US FCN), source: http://avalon.law.yale.edu/ Treaty of Friendship, Commerce and Navigation Between Argentina and the United States, signed in San Jose, 27 July 1853, source: http://avalon.law.yale.edu/ Other international agreements Agreement on Trade-Related Aspects of Intellectual Property Rights, signed in Marrakesh, 15 April 15, entered into force 1 January 1995, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C (TRIPs) Charter of the United Nations, signed in San Francisco, 26 June 1945, entered into force on 24 October 1945 (amended 1963 (1965), 1965 (1968) and 1971 (1973)) (UN Charter) Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950, entered into force on 3 September 1953, as amended by subsequent protocols (European Convention on Human Rights) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted in New York, on 10 June 1958, entered into force on 7 June 1959 (New York Convention) Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature on 18 March 1965, entered into force on 14 October 1966 (ICSID Convention) Energy Charter Treaty, signed in Lisbon, 17 December 1994, entered into force 16 April 1998 (ECT) General Agreement on Tariffs and Trade 1994, signed in Marrakesh, 15 April 15, entered into force 1 January 1995, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A (GATT) General Agreement on Trade and Services, signed in Marrakesh, 15 April 15, entered into force 1 January 1995, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B (GATS) OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed on 17 December 1997, entered into force on 15 February 1999 Treaty Establishing the European Community, Consolidated version, OJ C 321 E/1, 29.12.2006 (EC Treaty)

372

Index of treaties Treaty on European Union, Consolidated version, OJ C 83/13, 30.3.2010 (TEU) Treaty on the Functioning of the European Union, Consolidated version, OJ C 83/47, 30.3.2010 (TFEU) UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, adopted on 20 October 2005 in Paris, entered into force on 18 March 2007 (UNESCO Convention) Vienna Convention on the Law of Treaties, opened for signature on 23 May 1969, entered into force on 27 January 1980 (VCLT)

373

Index

Argentine crisis disputes 23, 24, 41, 72-73, 82-84, 120-121, 142, 167-168, 177-178, 193, 195, 199-200, 202, 204, 211, 238-242, 244-247, 249-257, 260-261, 264-265, 267-270, 278, 280, 289, 290-292, 298, 300-302 Balance of payments 157-158 Bribery 272-273 Chapeau 101, 124, 169 et seq., 175 et seq., 179 et seq., 206-207, 210, 228 Clarifications 42-45 Clausula rebus sic stantibus 272-273 Compensation 33-35, 46, 52, 73, 91-92, 149-150, 154, 180-181, 237, 258, 263-265, 267-268, 270, 273, 282 et seq., 298 et seq. Compensation for losses 166-169 Corporate social responsibility 60-61, 64, 105-117, 280 Corruption 62, 110, 116-118, 272-273 Cultural diversity 30, 60, 64-66, 89, 102, 116, 134-136, 186, 216 et seq. Declaratory right to regulate 111-115 Deference 40-42, 202-203, 205, 249, 253, 277, 287-288, 294, 296-297, 301-302

Distress 258 Effective treaty interprétation 91, 182, 243-245, 254 Environment 47, 59 et seq., 73, 79, 88-90, 101-122, 136, 150-151, 157, 164-165, 246, 281, 284-285, 290, 300-302 Essential interests 88-90, 216, 239, 247, 256 Essential security interests 78 et seq., 206-211, 290-293. See also Argentine crisis disputes and Necessity. EU investment agreements 22, 49-50, 62-66, 79, 138, 142-143, 153, 156, 173-174, 225, 231-232 European Convention on Human Rights 57-58, 152-155, 188 Expropriation 148 et seq., 180 et seq., 281 et seq. Extreme emergency (circumstances of) 81, 94, 191, 206, 210, 237 Fair and equitable treatment 143 et seq., 184 et seq., 276 et seq. Force majeure 94, 168, 237, 241, 257-258 Friendship, commerce and navigation treaties 53 et seq. Full protection and security 44, 59, 126, 143 et seq., 179, 184-185, 192

375

Index

General exceptions modelled after Article XX GATT 169 et seq. In like circumstances 139-143, 184, 188, 276, 293-295, 300 International peace and security 78 et seq., 90-93, 206, 209, 299 Interpretive statements 42-44, 151 Investment definition 35 et seq., 43-44, 87 Investment in accordance with host state law 39, 55, 107 Ius cogens 181, 253, 270-272 Lex specialis 250-251, 259, 261, 263 Minimum standard of treatment 143 et seq., 184 et seq. Most-favoured-nation treatment 126 et seq., 182 et seq. Most-favoured-nation treatment and investor-state dispute settlement 136-138 National treatment 126 et seq., 182 et seq. Necessity 237-270. See also Argentine crisis disputes. New generation investment treaties 27, 49, 66, 101, 128, 150, 303 Nexus requirement 190 et seq. Non-lowering of health, safety, labour or environmental standards 105-106, 111, 118, 122, 299

376

Performance requirements 164-166, 186 Police powers doctrine 41, 97, 151-152, 181, 276, 281 et seq., 302 Positive language 104-122 Preamble (and positive language) 115-122 Primary and secondary rules 251, 259 et seq. Proportionality 35, 57, 114, 145-146, 153, 155, 280, 286 Public interest 99-103, 173 et seq. Public order 94-99 REIO clause 130 et seq., 159 et seq. Reservations 50-52 Self-judging clauses 190 et seq. Sole effect doctrine 41, 276, 281 et seq. Sovereign wealth funds 81, 84-87, 299 Taxation 211-216 Temporary safeguards 157 et seq. Transfers of capital 155 et seq., 186 Umbrella clause 43, 48-50 WTO law and jurisprudence 56-58, 177 et seq., 193