Host State’s Regulatory Change for Public Health in the Context of Different FET Formulations: US and China Investment Treaty Practices as Examples

Abstract

The conflict of interest between foreign investor’s entitlement to regulatory stability and a host state’s need to regulate domestic matters through regulatory change has been the core of the fair and equitable treatment (FET) standard. However, under current FET formulations, such as those applied in the US’s and China’s investment treaties, there provides no explicit indication as to investor’s legitimate expectations and host state’s regulatory change. Subject to different positions taken by arbitral tribunals in light of various FET formulations, when regulatory change will trigger a host state’s liability to the investor remains questionable. This may have a real implication for the host state to introduce or amend its regulatory measures to adjust to new changing circumstance. Modeled on the Canada–EU Comprehensive Economic and Trade Agreement (CETA) approach, this chapter suggests that a new provision strengthening the host state’s right to regulate through modification to law in pursuance of public health should be introduced into the FET clause. In effect, major or radical regulatory change of the host state for public health in itself also does not amount to a breach of the FET clause. In this way, the host state’s public health measures would be afforded more flexibilities to meet its own societal needs as the circumstances evolve. As more and more governments around the world make efforts to negotiate investment treaties and join mega-FTA, perhaps it is the right time for draft negotiators to think and redesign an FET clause clearer to the host state’s regulatory right to pursue primary public health through regulatory change.