Investment Treaty Obligations Research Articles

A quasi‐normative conflict: Resolving the tension between investment treaties and climate action

AbstractThe conflict between investment treaties and climate action is escalating due to recent investment arbitration cases challenging States' fossil fuel phase‐out measures as violations of investment treaty obligations. As countries continue to implement climate mitigation and adaptation measures across various industries, this tension is expected to result in a rise in climate‐related investment arbitration claims. The current literature has primarily presented the tension between investment and climate treaties as a vertical conflict, with investment treaties having a chilling effect on States' climate regulation. The common defence for States' regulation has been based on their ‘right to regulate’. It remains unclear whether there exists a horizontal conflict between investment and climate treaties, primarily due to the flexible nature of climate treaty obligations. However, a sovereignty‐based justification fails to recognise the international obligation of climate action and is insufficient for reconciling the conflict. This article delves into the intricate nature of the conflict between States' climate measures and their investment treaty obligations and argues that the conflict exhibits a ‘quasi‐normative’ nature, given the combination of binding climate obligations, permissive implementation methods and normative expectations of ambition. The article suggests that investment treaties should include clearly defined conflict clauses that outline the scope of the conflict between investment and climate treaties and establish specific mechanisms for resolving such conflicts.

ISDS 2.0: time for a doctrine of precedent?

Abstract The reform process for ISDS at UNCITRAL is reaching its climax. Within the next few years, a treaty for ‘ISDS 2.0’ should emerge from this process. A key feature of ISDS 2.0 will be a new international court for resolving investor–state disputes. This court should include an appellate tribunal. A core function of this appellate tribunal will be to produce consistent case law, noting a common complaint about ‘ISDS 1.0’ is that it has produced inconsistent case law. There is good reason to believe that the appellate tribunal of ISDS 2.0 can deliver consistent case law, but the promoters behind ISDS 2.0 need to be careful what they wish for. The WTO dispute settlement system produced consistent case law, yet that achievement turned out to be a reason for its subsequent breakdown. Consistent case law apparently sounds good in theory, but it is not welcome in practice. Is there a way out of this conundrum? This article proposes that a formal doctrine of precedent is the solution. This proposal might initially provoke some surprise—a softer system of precedent is apparently the best compromise. But a doctrine of precedent can be crafted to limit adjudicative law-making power, while emphasizing states’ control over their investment–treaty obligations. This article puts forward the broad outline of this conception of a doctrine of precedent, explains why it gives effect to states’ interests, and examines the methods by which a doctrine of precedent could be adopted.

Constitutional Acquisition and Regulation of Property, Investment Treaties and Expropriation in Africa

Abstract The reforms of investment treaties include the incorporation of flexibilities into standards of investment protection such as indirect expropriation to accommodate public interest regulatory autonomy. In this article, I assess the efficacy of these reforms by analysing the intersection of constitutional provisions on compulsory acquisition and regulation of property in selected African constitutions and expropriation provisions in investment treaties. I argue that indirect expropriation provisions in investment treaties are unconstitutional. I also argue that the new generation investment treaties which incorporate these exceptions do not preserve African States’ authority to acquire and regulate private property. The exceptions do not resolve the incompatibility between the constitutional authority to take and regulate property without paying compensation and African States’ investment treaty obligations on indirect expropriation. By providing for precatory and inefficacious exceptions to indirect expropriation while leaving intact substantive standards of investment protection, the reforms of investment treaties preserve an investment treaty law and arbitration regime that remains skewed towards investors and covered investments.

The formulation and determination of expropriation clauses in BITs of Sri Lanka: gaps and prospects

ABSTRACT The expropriation clause is the most frequently challenged provision in Bilateral Investment Treaties (BITs). Differences in the text of treaties and sometimes similar provisions have led the tribunals to offer varying views adopting different tests for determining expropriation. The consequences of such decisions ranged from the denunciation of investment treaty obligations to renewing the investment treaties. Against this backdrop, this article provides a detailed analysis of the expropriation clause in Sri Lanka’s BITs. This paper critically analyses the textual formation of the expropriation clause in all of Sri Lanka’s BITs by mapping each of them and argues that the present formulation of expropriation clause is inadequate for exercising the regulatory power of Sri Lanka to realize its public policy concerns. In light of growing trends in the BIT regime, the article concludes that the expropriation clauses of Sri Lanka’s BITs should be reformulated in a manner balancing investment protection with Sri Lanka’s regulatory power to pursue non-commercial policy concerns.

Investor-state dispute settlement and tax matters: limitations on state’s sovereign right to tax

ABSTRACT More and more countries are coordinating at the international level to implement taxation measures to counter the problem of tax avoidance by multinational corporations (MNCs). This has led to increasing internalization of taxation measures, which, in turn, will lead to greater normative dialogue between international taxation and other branches of public international law such as international investment law (IIL). This paper argues that MNCs and foreign investors have not shied from using the IIL framework to challenge sovereign taxation measures of States before investor-State dispute settlement (ISDS) tribunals. These challenges, part of the increasing judicialization of international tax measures, have generated a rich body of case law. While ISDS tribunals are generally deferential towards State’s sovereign right to tax, they clearly recognize certain limits on this sovereign power. ISDS tribunals have not hesitated from laying down principles where abuse of taxation powers or imposition of taxes that are not reasonable or proportionate have been held to be inconsistent with the country’s investment treaty obligations. Even carving-out taxation measures from the ambit of the investment treaty are no surety that an ISDS tribunal will not exercise jurisdiction over such tax measures especially when they are not exercised in a bona fide manner. As countries find ways to tax MNCs to counter the problem of tax avoidance, they should keep these important jurisprudential principles in mind.

Local resistance: at the margins of investment law

ABSTRACT If states all over the world have signed on to investment treaty obligations, they often have done so without knowledge or interest in resolving tensions existing between local communities and foreign investors. In cases where those relations have turned toxic, proximity can turn out to be a matter of life and death. International investment law, as presently organized, is not disposed to hear the voices of those who experience environmental or economic degradation at the hands of foreign investors who disregard local impacts. The venues in which investment laws are constructed turn out to be uninviting spaces for local communities and their allies. This essay argues that, rather than engaging in international legal arenas where such voices are unwelcome, it may be more worthwhile to work in alliance with local and transnational civil society actors to steer state power to reverse the dangers arising from the overprotection of investors.

Do international trade and investment agreements generate regulatory chill in public health policymaking? A case study of nutrition and alcohol policy in South Africa

BackgroundTrade and health scholars have raised concern that international trade and particularly investment disputes may be used by transnational health harmful commodity corporations (THCCs) to effectively generate public health regulatory chill. The purpose of this study was to contribute to the limited evidence base of trade or investment dispute-related regulatory chill using a case study of nutrition and alcohol policy in South Africa.MethodsWe conducted 35 semi-structured interviews with 36 key stakeholders involved in nutrition, alcohol and/or trade/investment policymaking in South Africa. Interview transcripts were analyzed using thematic analysis. We used Schram et al’s theory on three forms of regulatory chill (anticipatory, response and precedential) to guide the analysis. We report evidence on each form of regulatory chill as well as specific contextual factors that may influence the risk of regulatory chill.ResultsTrade obligations were found to generate a significantly greater anticipatory-type chilling effect on nutrition and alcohol regulation than South Africa’s investment treaty obligations. Response chill was reported to have occurred in relation to South Africa’s proposed tobacco plain packaging regulation while awaiting the outcome of both Australia’s investor-state and WTO state-state disputes. No cases were reported of THCCs threatening an investor-state dispute over nutrition or food regulations, but there were reported cases of THCCs using arguments related to South Africa’s trade obligations to oppose policy action in these areas. No evidence of nutrition or alcohol policy precedential chill were identified. Factors affecting the risk of policy chill include legitimacy and perceived bias of the dispute system, costs involved in pursuing a regulation/defending a dispute and capacity to pay, social acceptability of the industry, a product’s perceived risk to health and confidence in a successful dispute outcome e.g. through cross-border policy learning.ConclusionsOur findings indicate that currently, South Africa’s trade obligations have a more prominent role in inhibiting nutrition and alcohol action than investment treaty-related concerns. However, given the potential for wider use of the ISDS mechanism by THCCs in the future, strategies to protect public health policy space in the context of both international trade and investment treaty and dispute settlement contexts remain important.

Potential Investor Claims and Possible State Defences During the Covid-19 Emergency

Since it was announced as a public health emergency of international concern in 2019, Covid-19 has caused enormous loss of property and life. The country's emergency policies in responding to the Covid outbreak are numerous, such as closing public transportation and prohibiting the export of medical devices. These policies have potentially harmed the interests of investors. This study has three purposes: investors' potential claims to challenge state measures addressed to Covid-19, the legal defences of states, and the possibility of an international investment dispute. This study shows that investors' potential claims may be delivered based on violations of the principles of fair and equal treatment, full protection and security, and national treatment and the most favoured nations. While a state can defend itself based on the principles of force majeure and state necessity, states can also defence through Non preclude measures or right to regulate clause in international investment agreements. In addition, it would also be better to build international solidarity and cooperation to mitigate and defeat the Covid-19 pandemic than sue the government before ISDS. States need collective action to avoid a surge of investor-state Arbitration. Governments’ policy to combat Covid-19 is to be considered as acting in necessity and therefore cannot be found in breach of their investment treaty obligations as long as that policy meet the necessity, proportionate, and non-discrimination requirements.

AUTONOMY TO SET THE LEVEL OF REGULATORY PROTECTION IN INTERNATIONAL INVESTMENT LAW

AbstractThis article argues that State autonomy in setting the level of protection for permissible regulatory aims can be better operationalised in the investment treaty regime. The article draws on comparative insights from WTO law, where it is established that WTO members have the right to determine the level of protection for permissible regulatory aims, although significant disciplines are placed on the means used to achieve those aims. It is then argued that investment treaties are, properly interpreted, consistent with the idea that States retain autonomy to determine the level of protection for permissible regulatory aims. Finally, the article proposes removing from the fair and equitable treatment and indirect expropriation standards proportionality balancingstricto sensu, as this undermines State autonomy in setting the level of protection. Overall, this article argues for a partial reorientation of investment law, in which non-discriminatory measures that pursue a permissible regulatory aim, including at a particular level, should not amount to a breach of a treaty where a State uses the means that involve the least possible restriction of the competing interests protected by relevant investment treaty obligations.

‘The Making of an Investment’ in the Context of the Temporal Scope of Investment Treaty Protection. Does the Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia Award of 29 March 2019 Constitute a Breakthrough?

This contribution deals with the question of the legal character of investment treaty claims, brought to international investment arbitration, when alleged breaches of investment treaty obligations towards an investor occurred after the entry into force of an investment treaty but before the making of an investment by an investor. The analysis of the existing legal framework allows for the conclusion that the said acts of a host state are generally excluded from the scope of investment treaty protection. An arbitral tribunal neither has jurisdiction over these acts nor is it allowed to apply substantive treaty provisions thereto. This conclusion stems from the principle of intertemporal law and numerous provisions of investment treaties constituting the implementation or modification of this principle. Nevertheless, an arbitral tribunal is not fully deprived of the possibility of considering the acts of a host state preceding the making of an investmentand undertaken before any activity of the future investor took place. It can consider them as evidence of the intent of a host state, acts creating legitimate expectations of an investor or acts constituting elements of what is termed a continuing act.

Reconciling the Conflict between International Investment Arbitration and Protection of Human Rights: Way Out

Human rights matters are increasingly becoming interwoven with Arbitration. The fact that, so far, international human rights norms are, as a matter of international law, not directly applicable on a horizontal level -- that is, in the relation between foreign investors and other private parties -- makes it not straightforward to bring claims based on the breach by the foreign investor of human rights obligations before a treaty-based arbitral tribunal. Instead, such obligations exist mainly on the domestic legal level. Also, traditionally, international investment treaties are silent on issues of human rights. Although states have recently effectively included references to human rights norms in their bilateral investment treaties (BITs) and other multilateral treaties (MITs), such as the recently negotiated Draft Pan-African Investment Code (PAIC), the vast majority of contemporary BITs do not mention human rights. There is a global increase in the use of International arbitration as a dispute resolution mechanism especially in international investment disputes and the debates on: (I) obligations of foreign investors to respect human rights of host states, and (II) whether the state can sufficiently maintain policy space alongside Investment treaty obligations with International Investors and the feasibility of enforceability of an award arising from investor-state dispute. The overlap between arbitration and human right matters in Investment arbitration brings to fore the inseparability of these two seemingly distinct areas. The nagging question has been the impact of Investment treaties on the ability of the state to enforce policies which safeguard human rights and the extent of the jurisdiction of an arbitral tribunal in Human right matters arising from International Investment agreements. This is essential because most international arbitration agreements are based on Bilateral or Multilateral investment treaties. The relationship between human rights and international investment law manifests itself in different contexts and directions. Two general and broad approaches concerning human rights law exist from the perspective of investment protection: human rights can be used to support or enlarge claims of investors or they can be used to strengthen the state’s defence of its actions which are taken to respect, protect and fulfil human rights. Similarly, investment law can be viewed in two different ways from the perspective of human rights: it can be seen as creating restrictions on the state’s ability to respect, protect and fulfil the rights of occupants of the state; it may also be perceived as a breach of individual rights of investors under international investment law. This work will discuss the application of arbitration in International Investment disputes, in particular relation to emergence of Human right matters in arbitration of Investor-state disputes. It will consider the circumstances under which human rights concerns can be raised before an arbitral tribunal set up under a BIT, when and how this can be done, the limited jurisdiction of tribunals over human rights matters, and the challenge of finding a balance where there is an overlap between Human rights and arbitration.

Control, Capacity, and Legitimacy in Investment Treaty Arbitration

Arbitration has long been the default mechanism for resolving international investment disputes. The traditional consensus favoring arbitration, however, has now given way, and reform proposals abound. The articles by Sergio Puig and Gregory Shaffer, on institutional choice and investment law reform, and by Anthea Roberts, on incremental, systemic, and paradigmatic reform of investor-state arbitration, helpfully situate the current controversies, debates, and reform options for states. Both articles reveal just how far and fast the debate has shifted in recent years. They also confirm states’ desire to exercise greater control over the regime for resolving international investment disputes. Many states continue to struggle to fully comply with their investment treaty obligations, to efficiently defend against investor claims, and to properly keep abreast of and shape developments in international investment law. Puig and Shaffer provide a useful framework for comparatively assessing possible institutional alternatives in light of their relative trade-offs. But any reform recommendations should draw lessons from states’ experience with the existing regime, including states’ significant problems of capacity. The merits of any reform proposals, therefore, should be measured in part by their ability to improve states’ capacity to cope with the existing investment protection regime and rapidly changing developments.

Compliance with Canada's Trade and Investment Treaty Obligations: Addressing the Gap Between Provincial Action and Federal Responsibility

Provincial compliance with trade and investment treaty commitments is increasingly important. However, Canada’s federal system makes negotiating treaty obligations in the areas of provincial jurisdiction particularly difficult. This article analyzes the challenges related to treaty commitments in areas of provincial jurisdiction, revisits the Canadian constitutional allocation of responsibility for treaty negotiation, ratification, implementation, and compliance, and explores the prospects for using intergovernmental agreement to address concerns about provincial compliance.

Striking a Balance between the Protection of Foreign Investment and the Safeguard of Cultural Heritage in International Investment Agreements: Can General Exceptions Make a Difference?

The object of this article is to examine different options in investment treaty making for addressing and preventing potential conflicts of norms that involve investment and cultural heritage rights. For this purpose, it will be taken into account the rationale of intergenerational justice and the extent to which it may underpin the protection of cultural heritage within the realm of international investment law. Part II is devoted to examine the interface between investment treaty obligations and international cultural heritage law. It explores potential conflicts of norms and delves into the culture-related cases in investor-State arbitration. Part III turns then into the analysis of investment treaty making alternatives deemed consistent with the safeguard of cultural heritage. This part addresses first the option of a refinement of treaty standards of investment protection, an ends up with an analysis concerning the suitability of including culture-related IIA exceptions. Part IV provides the overall conclusions of the study.

Human rights and international investment arbitration

Recent investment arbitration disputes have raised several human rights related issues, which do not form part of the traditional scope of investment treaties. Obligations in investment treaties can impair human rights if interpreted too broadly during arbitration. Therefore, it is necessary to determine whether investor-state dispute settlement (ISDS) tribunals are adequately equipped to resolve treaty disputes where the human rights obligations of states clash with a state’s investment treaty obligations. In some states, such as South Africa, there are competing interests between the state’s constitutional rights obligations and treaty-imposed investment obligations. In seeking to balance these competing interests and to ensure that the constitutional rights as well as responsibilities of the state are not undermined, this article proposes an interpretive approach in ISDS tribunals that applies a hybrid approach that considers both domestic and international law. The paper argues that the use of global administrative law principles, particularly the principle of deference, can achieve the consideration of both domestic and international law. In building this argument, the author explores the emerging trends in ISDS, such as new rules on transparency and public participation and the scope of their application, which has led to the claims that ISDS arbitration is undergoing a legitimacy crisis. This paper proposes an alternative approach where ISDS tribunals defer to domestic law when determining the content and scope of treaty obligations.

Necessity as a ground for precluding wrongfulness in international investment law

The issue of necessity as a ground for precluding wrongfulness has received close attention over the last two decades both in case law and in scholarly writings. Arbitrations conducted against Argentina for breaches of bilateral investment treaty obligations committed while fighting against economic crisis revived the old controversies related to the concept of necessity in general public international law, but also brought up some new dilemmas. This paper analyses the use of necessity in international investment law in light of what the authors suggest to be the legal purpose of this concept, points to and discusses the divergences in case law with respect to some of the elements of the defence based on necessity and offers the solutions susceptible to lead to a more harmonious understanding of necessity in international investment law.

Country Risk and Damages in Investment Arbitration

In investor–State international arbitrations, the claimant investor and respondent State often diverge on quantum. Disagreement over the appropriate discount for country risk is frequently an important cause of this divergence. In particular, investor-State tribunals have been split on whether the risk that the State may violate its foreign investment treaty obligations should lower damages awards. Country risk refers to the valuation discount caused by factors specific to the country in which the project is located. Such factors may include the relative stability of economic conditions (such as exchange rates) and social conditions (such as civil unrest). Country risk may also include the risk of unlawful State conduct, such as expropriation without full compensation and conduct that violates a State’s international legal obligations. A foreign investor that can invoke treaty protections may have a right of recovery for unlawful State conduct through international arbitration. But should a damages award set quantum assuming that the sovereign will in the future meet all of its legal obligations, or should it assume only that the specific violation being arbitrated did not occur? In other words, should the risk of future illegal State conduct lower the investor’s recovery? This issue matters because the observed or estimated market value of assets facing the possibility of future breaches can reflect a discount for the risk of illegal State conduct, especially if markets anticipate that the investor will not be fully compensated. The debate surrounding this question can be seen in three recent decisions involving claims against Venezuela. First, the Tribunal in Gold Reserve v Venezuela

Investor Rights and the Judicial Denial of the Neoliberal Constitutionalism

This paper argues that the Canadian judiciary engages in a form of constitutional abnegation by insisting that international investment law, as represented by NAFTA’s investment chapter, plays no role in Canada’s constitutional order. By conferring rights upon investors, enforceable against states in private arenas, for breach of investment treaty obligations, states are subject to the disciplines that sometimes mimic, and other times go well beyond, those found in dominant national constitutional systems. The Canadian judiciary lacks the courage – ‘constitutional courage,’ in Harry Arthur’s words – to admit that external legal regimes can have the effect of significantly transforming domestic constitutionalism. To illustrate, I take up constitutional litigation initiated by the Council of Canadians, the Canadian Union of Canadian Union of Postal Workers, and the Charter Committee on Poverty Issues challenging the consistency NAFTA’s investment chapter with Canada’s constitution. Predictably, their arguments were dismissed by various levels of court on the basis that international law and domestic constitutional law operate in ‘different spheres.’ It turns out that, according to these judges, the international investment regime has no connection with constitutionalism here or abroad.

Introduction to Symposium on Alan O. Sykes, “Economic ‘Necessity’ in International Law”

This symposium of two essays responds to Alan Sykes’ editorial comment in the American Journal of International Law, entitled “Economic ‘Necessity’ in International Law.”1 In that comment, Sykes applies a rational choice approach from contract theory to assess the application of the “necessity” test by international courts. Sykes focuses on international investment law, where the issue has become quite salient because different arbitral tribunals have issued radically different holdings based on the same set of underlying facts. Sykes starts by drawing lessons from theory and jurisprudence regarding necessity defenses in other legal fields, such as tort, contract, and international trade law. He then reviews, from an economic perspective, the customary international law defense of necessity and the jurisprudence on the necessity defense in international investment law, in particular that involving Argentina. He contends that, in order to limit opportunism and moral hazard, compensation should normally be due by a State that justifiably invokes a situation of necessity as a defense to a violation of its investment treaty obligations, but that such compensation should not be due until after the period of necessity terminates. The actual amount of compensation, he further contends, could be reduced so as not to require the payment of interest. He also leaves open the possibility that the justified invocation of necessity could be a complete defense so that no compensation would be due if the prospect of paying compensation would effectively preclude the State from adopting a necessary measure, an event he suggests would rarely occur. He thus proposes to “marry deference to a state’s claim for a need to apply emergency measures with [an appropriate] compensation requirement.”2 Professors Alberto Alvarez-Jimenez (University of Waikato, New Zealand) and Anne van Aaken (University of Saint Gallen, Switzerland) respond to Sykes in this symposium. Alvarez-Jimenez broadly agrees with Sykes’ insights and overall goal of attaining a balanced allocation of risks between States and investors in situations of economic emergencies, but finds that it would be inappropriate for an arbitral tribunal to apply Sykes’ logic without further treaty guidance.3 Nonetheless, he finds that tribunals can find, and already have found, ways to apply Sykes’ proposal (deferred compensation, possibly without interest) within the framework of existing jurisprudence. He first points out that by the time an arbitral tribunal issues an award, years have passed (especially where the process includes an annulment proceeding and request to stay enforcement), so that a de facto suspension of compensation has occurred. He then notes that tribunals can decide both that no compensation is due during an economic emergency for emergency measures taken, and that the

A rethink of investor-state dispute settlement

Professor A F M Maniruzzaman considers the impact of a spectacular growth of investor-state dispute resolution by arbitration over the last two decades, looking at issues raised by excessive investor-state arbitral awards with wider implications beyond the field of arbitration itself, such as concerns about the role of arbitrators vis-a-vis the respondent state’s public interest in regulating various matters including environmental protection, low-carbon investments, social and human rights; dire economic consequences flowing from arbitrators’ decisions who lack in democratic legitimacy of a domestic or international judicial institution; and inconsistency in arbitral interpretation of investment treaty obligations, hence unpredictability in arbitral decisions on similar or identical issues.