The interpretation of WTO – like general exceptions in investment agreements

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The interpretation of WTO – like

general exceptions in investment

agreements

Name: Robin de Ruiter Student number: 10003813 Date: 26 July 2015

Master: International Trade and Investment Law Faculty: Amsterdam Law School

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The UNCTAD World Investment Report 2014 revealed that there is a tendency to include more regulatory space in investment treaties, for example by incorporating a general exception clause. This paper considers the interpretation of general exceptions modelled to article XX GATT and article XIV GATS incorporated in international investment agreements. In this paper it is reasoned that investment tribunals should use WTO jurisprudence for the application of the general exceptions in an investment dispute. The focus will be on the general exception clauses of three agreements: The Comprehensive Economic and Trade Agreement, the EU – Singapore Free Trade Agreement and the Canadian Model FIPA. The general conclusion of this paper is that investment tribunals should follow WTO interpretation. Also, some suggestions to improve the general improvements in investment agreements are made.

Chapter 1 – Introduction

As some major Free Trade Agreements including extensive investment chapters are under negotiations, the proposed Investor State Dispute Settlement mechanism has initiated an intensive debate among the public.1 A common point of critique that is often expressed in the international investment law context is that it works as an unbalanced regime that places the interests of the investor and its investment over the interests of the host state that are not necessarily related to investments.2 One fear is that arbitrators are not aware of public interest concerns in the disputes they are faced with.3 One aspect of the investment regime that triggers this concern is when an investment obligation is violated, the aggrieved party may claim remedy for his loss in the form of (monetary) compensation.4 This risk of potentially being faced with high compensation costs may limit the regulatory space for states, especially in the case of developing states.5 This is also referred to as the ‘chilling – effect’ of international investment obligations.6 A consequence may be that states do not impose domestic regulatory measures in light of the public purpose or other policy goals due to the fear of international investors challenging these measures and

1

European Commission, 'European Commission launches public online consultation on invsetor protection in TTIP', (27 March 2014) < http://europa.eu/rapid/press-release_IP-14-292_en.htm> accessed: 23 July 2015

2

Charles N. Brower and Stephan W. Schill, ‘Is Arbitration a Threat or a Boon to the Legitimacy of International Investment Law?’ (2009) 9 Chicago Journal of International Law 471, 474

3

David Collins, ‘The Line of Equilibrium: Improving the Legitimacy of Investment Treaty Arbitration through the Application of the WTO’s General Exceptions’ (2014) SSRN Electronic Journal <http://ssrn.com/abstract=2487778> accessed 27 May 2015

4_{Krista Nadakavukaren Schefer, International Investment Law: Text, Case and Materials (Edward Elgar}

Publishing Limited 2013) 50 and 188

5

Jurgen Kürtz, ‘The Merits and Limits of Comparitivism: National Treatment in International Investment Law and the WTO’ in S. Schill (ed.), International Investment Law and Comparative Public Law 243, 255

6

Krista Nadakavukaren Schefer, International Investment Law: Text, Case and Materials (Edward Elgar Publishing Limited 2013)226

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demanding compensation.7 This concern of limited space for regulatory behaviour in favour of public policies by States is reflected in the public statement on the international investment regime, issued August 31, 2010, which expressed a ‘shared concern for the harm done to the public welfare by the international investment regime, as currently structured, especially its hampering of the ability of governments to act for their people in response to the concerns of human development and environmental sustainability’.8

A solution to this problem is arguably found in the incorporation of general exceptions that apply to investment obligations, which could relieve a State from its obligations towards investors under certain circumstances.9 The international trade regime already contains such general exceptions, e.g. in the General Agreement on Tariffs and Trade and the General Agreement on Trade in Services.10 General exceptions in the investment context could thus be modelled on article XX GATT and/or article XIV GATS.11 The incorporation of general exceptions for investment obligations is a development that has gained ground recently and has been developing over the past few years.12 However, it is not a unique development. The Draft Multilateral Agreement on Investment that dates from April 1998 already contained a general exception clause.13 It never came to a final text, since the negotiations were discontinued in April 1998.14 This exception clause already showed some similarities with the chapeau of article XX GATT but limited the justification ground to ‘the maintenance of public order’.15 More recently, the World Investment Report 2014 of UNCTAD recognizes the development of incorporating general exceptions. 16 Accordingly, 15 out of the 18 BITs and FTAs with substantial investment chapters that were concluded in 2013 included a general exception provision.17 According to

7

Supra, note 4 at 226

8

Gus van Harten and others, ‘Public Statement on the International Investment Regime’ (31 August 2010) <http://issuu.com/embajadaecuusa/docs/public_statement__final___dec_2013_ > accessed 27 May 2015

9_{Supra, note 3} 10

See Article XX GATT and Article XIV GATS

11

Andrew Newcombe, ‘General Exceptions in International Investment Agreements’ in Marie – Claire Cordonier Segger and others (eds), Sustainable Development in World Investment Law, Global Tralde Law Series (Kluwer Law International 2011) 356

12

UNCTAD, World Investment Report 2014. Investing in the SDGs: An Action Plan, (UNCTAD 2014) 116

13_{The Multilateral Agreement on Investment, Draft Consolidated Text, Chapter VI Exceptions and Safeguards,}

(1998) 76

14

Supra, note 4 at 36

15

The Multilateral Agreement on Investment, Draft Consolidated Text, General Exceptions, Para. 3

16

17

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UNCTAD, the inclusion of general exceptions in investment agreements is just one feature of several treaty aspects that generally aim at creating greater regulatory space for public purposes by the host State.18

There are several advantages of subjecting international investment obligations to general exceptions. One of the most obvious improvements is that general exceptions to investment obligations would create more balance between investment protection and public policy goals pursued by States.19 It will further create more clarity for arbitrators, who currently seem to struggle with public interests arguments made by host States as a defence in Investor - State disputes.20 This will lead to more legal certainty and assurance to investors as to what measures of a State are probably justifiable and whether or not a dispute would fruitful to pursue. 21

Investment obligations are mainly found in Bilateral Trade Agreements (BITs). Besides BITs, a significant part of the investment protection agreements are found in the investment chapters in Free Trade Agreements (FTA).22 For the purpose of this paper, any reference to international investment agreements or treaties includes BITs and international investment chapters incorporated in Free Trade Agreements and Regional Trade Agreements (RTA).

This paper will focus on the question of how investment tribunals faced with GATT or GATS like general exceptions that apply to investment obligations should interpret such general exceptions. By using the comparative law methodology, the aim of this paper is to compare the general exceptions and their interpretative guidelines used in recent investment protection agreements to the text and application of general exceptions of the GATT and GATS. Similarities and differences between the general exceptions and the treaty context in which they apply will be looked into. Based on this comparison, a prescriptive conclusion will eventually describe what sort of interpretation of general exceptions applying to investment obligations tribunals

18_{Supra, note 12 at 118} 19

Céline Lévesque, ‘The inclusion of GATT Article XX exceptions in IIAs: a potentially risky policy’, in Roberto Echandi and Pierre Sauve (eds), Prospects in International Investment Law and Policy: World Trade Forum (Cambridge University Press 2013) 363

20

Supra, note 3 at 11

21

Ibid

22

Brooks E. Allen and Tommaso Soave, ‘Jurisdictional Overlap in WTO Dispute Settlement and Investment Arbitration’ (2014) 30 The Journal of the London Court of International Arbitration 1, 4

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would preferably need to follow. Both literature and case – law will be used for the study of this paper. The working hypothesis will be that investment tribunals should follow the approach of the WTO dispute settlement bodies upon interpreting article XX GATT and article XIV GATS.

As the use of general exceptions in BITs remains uncommon and general exceptions are more often found in investment chapters of Free Trade Agreements, this paper will use the recent Comprehensive Economic and Trade Agreement (CETA) between the Canada and the EU and the freshly negotiated EU – Singapore FTA.23 Further, the Canada Model Foreign Investment Protection Agreement (which is Canada’s counterpart to a BIT) will be looked into, as this is the first Bilateral Investment Treaty amongst OECD States to include a general exception clause.24

Chapter 2 – General exceptions for investment obligations

Newcombe identifies the use of general exceptions modelled on Article XX of the General Agreement on Tariffs and Trade or Article XIV of the General Agreement on Trade in Services in the international investment law context.25 This practice is not common, and it entails the use of exceptions applying to investment obligations for purposes such as public order and the protection of human, animal and plant life or health.26 There are several options for treaties to incorporate the general exceptions used in the international trade law context. First of all, either one of article XX GATT or article XIV GATS can be incorporated with or without (necessary) modifications.27 However, a second option is to incorporate both articles with or without (necessary) changes, which is seen in CETA.28 Although the difference between these two options seems minor, it is important. The first option entails the incorporation of only one of the two general exception clauses, while the latter option includes both. The difference is significant, because some of the justification grounds of article XIV

23

Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment, (Kluwer Law International 2009), 500-1

24

Ibid and Canadian Department for Foreign Affairs, Trade and Development, ‘Canada’s FIPA Program: Its Purpose, Objective and Content’, (27 May 2014) < http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/fipa-purpose.aspx?lang=en> accessed 30 May 2015

25 Supra, note 23 at 484 26 Ibid 27 Ibid 28 Ibid

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GATS are not incorporated in article XX GATT and vice versa.29 The general exception clauses of GATT and/or GATS can also, as a third option, be simply referred to. This inconsistency illustrates one of the first problems with regard to the incorporation of general exceptions for investment obligation.30 However, the way that the general exceptions of the trade law agreements provide a model for the use of general exceptions in the investment law context is not the only variable element. Another inconsistency in this treaty practices is that States that have included general exceptions in some of their international investment agreements with respect to the investment obligations have not included those exceptions in all international investment agreements.31

Although the use of general exceptions for international investment obligations remains uncommon, a growing number of treaties have included them.32 Canada has been among the States (but the only one among the OECD States), which started to include general exceptions modelled on article XX of the General Agreement on Tariffs and Trade in their BITs.33 Newcombe also points out that a growing number of (bilateral) Free Trade Agreements have started to make use of general exceptions that apply to investment obligations.34

One argument in favour of adopting general exceptions that apply to investment obligations relates to the broad powers that are currently given to investors in IIAs, which is in sharp contrast to the WTO trade regime that is known for a strong focus on reciprocal trade barriers reduction.35 The general exceptions could act as a safeguard for unwarranted invocation of the Investor - State Dispute Settlement by investors.36 Another argument in favour of incorporating general exceptions is that confronted with an investment treaty lacking general exceptions, it is up to the arbitrators faced with the dispute to find a balance between the protection of an investor and the right to regulate of a State.37 This role of the arbitrator is very

29

Peter van den Bossche and Werner Zdouc, The Law and Policy of the World Trade Organization, (3rd edn, Cambridge University Press 2014) 583

30_{Supra, note 11 at 360} 31 Ibid 32_{Ibid 358} 33 Ibid 357 34 Ibid 358 35 Supra, note 3 at 10 36 Ibid 37 Ibid

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important, partly due to the fact that Investor – State dispute settlement does not have an option to appeal for either party and the heavy burden a compensation for an investor could impose on a State.38 Therefore, explicitly stating justification grounds in a general exception clause in a treaty would give the arbitrators more support as to what kind of regulatory measures of a State might be justified.39

There are also commentators who have expressed doubts concerning development, which they ascribe to jurisdictional conflicts between WTO dispute settlement and Investor – State dispute settlement and fundamental differences in the way the treaty obligations in the WTO Agreements and in Investment Agreements have been drafted.40 A few arguments against the incorporation of WTO – like general exceptions and an interpretation along WTO jurisprudence are discussed.

First of all, it is argued that incorporating general exception clauses in international investment agreements or investment chapters in, for example, free trade agreements will inherently limit the right to regulate of a State.41 This is explained by the fact that in the investment context there is often reference to investors in ‘like circumstances’.42 This reference has given investment tribunals the opportunity to balance investor interest with an unlimited number of possible government objectives.43 Naturally, an unlimited list of possible justification grounds is far broader than the closed list of grounds found in article XX GATT and article XIV GATS.44 However, if the unlimited list is hardly invoked, it still is not very effective. One way to overcome this issue is to expand the number justification grounds based on investment jurisprudence.45 Proposed measures that could be added to the list are measures that deal with, for instance, financial crises (Argentina case – law) and cultural preservation (SPP v. Egypt).46

38 Ibid 39 Ibid 40 Ibid 12

41_{Andrew Newcombe, ‘The use of general exceptions in IIAs: increasing legitimacy or uncertainty?’ in Armand}

de Mestral and Céline Lévesque (eds), Improving International Investment Agreements, (Routledge 2013) 281

42_{Nicholas DiMascio and Joost Pauwelyn, ‘Nondiscrimination in trade and investment treaties: worlds apart or}

two sides of the same coin?’ (2008) 102 The America Journal of International Law 48, 83

43 Ibid 82 44 Ibid 45 Supra, note 3 at 14 46 Ibid

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When it comes to the interpretation, there are two main arguments against the use of WTO jurisprudence in the investment law context. First of all, it is argued that there is likelihood of ‘informational asymmetry’ in investor – state arbitration, caused by the inequality of the parties (State vs. Investor) and the lack of resources the investor might be confronted with when it comes to the gathering of information.47 Although it is argued that the use of WTO jurisprudence will help solve some interpretative issues such as the burden of proof, others have stated that this informational asymmetry should be the factor that influences the way the burden of proof is allocated.48 It remains to be seen how this will evolve in the case law.

The difference in remedies in the two dispute settlement systems is a second jurisdictional hurdle that might block successful overlap.49 Where in the WTO systems a state has to withdraw or modify the measure that violates its obligations, a State in an investment dispute is confronted with compensation.50 However, in practice, in a WTO dispute the outcome is often that a State modifies its measure in such a way that it is justified by article XX GATT or article XIV GATS.51 In the investment law context, the general exceptions could play a similar, balancing role, by functioning as a ‘mitigating factor’ for the compensation that has to be paid.52

Chapter 3 – Treaty Practice

As stated earlier, a small but growing number of treaties that have started to incorporate different versions of general exceptions for investment obligations modelled on articles XX GATT and/or XIV GATS.53 For the purpose of this paper the recently negotiated Comprehensive Economic and Trade Agreement between Canada and the EU, the Free Trade Agreement between Singapore and the EU and Canadian Model FIPA will be discussed.54 The text of the general exception clause and the provisions on interpretation will be compared to that of the relevant WTO Agreements.

47

Jürgen Kurtz, ‘The Use and Abuse of WTO Law in Investor – State Arbitration: Competition and its Discontents’, (2009) 20 The European Journal of International Law 749, 758

48 Ibid 49_Ibid 50 Ibid 51 Supra, note 3 at 4 52 Ibid 16 53

Aikaterini Titi, The Right to Regulate in International Investment Law, (Hart Publishing 2013) 173

54

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Chapter 3.1 – The Comprehensive Economic and Trade Agreement

A recent example of the inclusion of general exceptions modelled on article XX GATT and article XIV GATS for the purpose of investment obligations is found in the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. The Comprehensive Economic and Trade Agreement is said to remove 99% of custom duties, boost trade and strengthen the economic relationship between Canada and the European Union.55 According to the summary on the final negotiations of CETA, the objective of the agreement is to ‘increase bilateral trade and investment flows and contribute to growth in times of economic uncertainty’.56

CETA constitutes to a certain extent a mix between a trade agreement and an investment agreement. On the one hand, the agreement is concluded within the realm of the WTO. The preamble of the CETA states that among the objectives of the agreement there is a “desire to further strengthen their close economic relationship and build on their respective rights and obligations under the Marrakesh Agreement

Establishing the World Trade Organization […]”. On the other hand, CETA is said to

replace the existing (8) bilateral investment treaties between individual Member States of the EU and Canada by including investment protection provisions and an Investor – State dispute settlement mechanism.57 It will thus show characteristics of both a classic international trade agreement and a classic international investment agreement.

It is argued that the drafters of CETA have tried to overcome some difficulties faced with NAFTA and Bilateral Investment Treaties, especially the challenges that have come up in Investor – State disputes.58 However, especially the investment rules of CETA have been received with some reluctance, caused by the fear of CETA limiting the regulatory powers of the municipal and provincial governments.59 An answer to this concern might lie in the incorporation of general exceptions in the investment

55

European Commission, ‘EU – Canada Comprehensive Economic and Trade Agreement’ (19 December 2014) <http://ec.europa.eu/trade/policy/in-focus/ceta/ > accessed: 30 May 2015

56

European Commission, ‘CETA – Summary of the final negotiating results’ (December 2014) <http://trade.ec.europa.eu/doclib/docs/2014/december/tradoc_152982.pdf> accessed 30 May 2015

57

Supra, note 55

58

Armand de Mestral and Stephanie Mullen, ‘The Investment Provisions of the CETA’, (CETA Policy Briefs

Series, October 2013) <http://labs.carleton.ca/canadaeurope/wp-content/uploads/sites/9/CETD_CETA-policy-brief_Investment_De-Mestral-Mullen.pdf> accessed 30 May 2015

59

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chapter of CETA, which would have to balance the investor protection by emphasizing a State’s right to regulate in light of legitimate public purposes.60

Chapter 3.1.1 – Difficulties of the North Atlantic Free Trade Agreement

NAFTA has been accused of creating the opportunity for corporations to challenge domestic regulations imposed by States aimed at protecting public interests such as environmental, health and safety issues.61 According to Cosbey, Chapter 11 of NAFTA transformed from a ‘protective shield for defending corporations’ into a ‘sword used by those corporations to attack legitimate government regulation in the public interest’.62 Provisions such as National Treatment, Most Favoured Nation and Performance Requirements would limit the types of measures that can be imposed on investments.63 Foreign investors who are denied certain rights or opportunities in the light of a public interest can, based on a National Treatment provision, challenge that policy choice of a State if there is a national company that has been granted a similar right or opportunity. 64 Besides National Treatment, the MFN obligation and Performance Requirements are also, in a slightly different way, capable of limiting a State’s regulatory power.65 Cosbey mentions several possible solutions to the issue, one of them being the incorporation of an ‘environment, health and safety exception in Chapter 11’.66 He refers to the general exception clause of article XX GATT, but argues that the option of incorporating general exceptions to Chapter 11 NAFTA is questionable for several reasons.67 General exceptions to regulatory powers of a State would imply that the regulatory measure in question is illegal, while the assumption ought to be that the right to regulate for a State is fundamental and restricting this right to regulate in light of investor or investment protection should be the exception.68 It is further argued that if the effect is the same, it is not an issue to start with the presumption that the measures in light of the public interest are ‘not

60

Supra, note 3 at 17

61

Aaron Cosbey, ‘The Road to Hell? Investor Protections in NAFTA’s Chapter 11’, in Lyuba Zarsky (ed),

International Investment for Sustainable Development: Balancing Rights and Rewards (Earthscan 2005) 150

62 Ibid 151 63 Ibid 154 64 Ibid 158 65_{Ibid 161} 66 Ibid 164 67_{Ibid 165} 68

Howard Mann, ‘The Right to Regulate and International Investment Law’ (Expert Meeting on the Development Dimensions of FDI: Policies to Enhance the Role of FDI in Support of the Competitiveness of the Enterprise Sector and the Economic Performance of Host Economies, Taking into Account the Trade/Investment Interface, in the National and International Context, Geneva, 6 – 8 November 2002) 5

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normal’.69 However, it is questioned whether the effect is not the same, due to the experience of article XX GATT that shows that it is an extremely difficult task to pass the test of the chapeau or the ‘necessity – test’.70

Chapter 3.1.2 – Draft CETA Text

The parties to CETA have chosen to incorporate a general exception clause in the agreement that also applies to the investment obligations.71 The clause already appeared in the draft text of the agreement. The first draft text of the investment chapter of CETA dates from 21 November 2013. Article X of the Draft text includes the general exceptions clause.72 The scope of this article was at the time the entire Investment Chapter, including obligations such as National Treatment, Most – Favoured – Nation and Expropriation.73 The similarities between the draft general exception clause of CETA and the general exception clause of the GATT indicates that the general exceptions clause in CETA is modelled on article XX GATT and article XIV GATS. 74 Both articles for example refer to measures necessary ‘to protect human, animal or plant life or health’.75

In December 2013 the European Commission issued a comment on the investment chapter of the CETA.76 According to the European Commission, CETA preserves ‘the EU and Canada’s right to regulate and pursue legitimate public policy objectives such as the protection of health, safety, or the environment’.77

The International Institute for Sustainable Development issued a response to the statement of the European Commission and the Draft CETA Text in February 2014.78 Among other aspects, they responded to the statement on the right to regulate and the exceptions as included in the draft CETA Investment Chapter (21 November 2013) 69 Supra, note 61 at 165 70 Ibid 71

Article X.02 Chapter 27 Comprehensive Economic and Trade Agreement

72_{Although here incorporated in the investment chapter, it was already noted that the general exception clause}

would eventually be included in the general Chapter of Exceptions of the Agreement

73

Respectively article X.7, X.8 and X.11 of the CETA Draft Investment Text, 21 November 2013

74

Nathalie Bernasconi – Osterwalder and Howard Mann, ‘A Response to the European Commission’s December 2013 Document “Investment Provisions in the EU – Canada Free Trade Agreement”’, (IISD Report, February 2014) 2

75_{Article XX(b) GATT and article X(1)(a)(ii) Draft CETA} 76

European Commission, ‘Investment Provisions in the EU – Canada Free Trade Agreement (CETA)’ (26 September 2014) <http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf> accessed 30 May 2015

77

Ibid

78

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and the draft ISDS text (4 February 2014). The exceptions are important, because these provisions have the power to excuse regulatory measure taken by a State from the obligations set out in the agreement.79 Several observations are made.

First of all, the report notes that the general exceptions in the draft CETA text are modelled on article XX GATT.80 The IISD report expresses the concern that the CETA drafters have assumed that article XX GATT can serve the same or a similar role towards investment obligations as it does towards trade obligations, without any previous use of the article in such a way.81 On the contrary, it has happened in the past that a WTO panel was confronted with the question whether investment obligations could be reviewed under GATT law. In the Canada – Administration of

the Foreign Investment Review Act case, a dispute was brought before the WTO panel

under the Canadian Foreign Investment Review Act (FIRA).82 One of the issues that the United States wanted to raise in this dispute related to the practice of the Canadian government to enter into agreements with foreign investors.83 However, concerns were expressed at the Council meeting whether the GATT had competence to review the dispute with regard to the question on investment legislation of Canada.84 To ease these doubts and concerns, it was emphasized by the parties to the dispute that the case would only concern trade – related issues and according to Canada, the terms of reference would ensure that the examination would only regard trade matters that would fall within the scope of the GATT.85 This shows that at that time, certain parties to the GATT were reluctant to apply the obligations of the General Agreement on Tariffs and Trade to investment obligations arising out of the Canadian Administration of the Foreign Investment Review Act, based on the argument that the GATT did not cover the particular subject of investment.86

A second observation was that, at the time of writing the report, the scope of application of the general exceptions was undecided.87 The draft general exception

79 Ibid 80_Ibid 81 Ibid

82_{Canada - Administration of the Foreign Investment Review Act, 7 February 1984, L/5504 – 30S/140} 83 Ibid para. 1.4 84 Ibid 85 Ibid 86 Ibid 87 Supra, note 74 at 2

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clause applied to the entire investment chapter, but the parties were still negotiating the actual content of the justification grounds. In the final text, the scope of application of the general exception clause in article X.02 sub 1 and 2 is limited to Investment Section 2 (Establishment of Investments) and Investment Section 3 (Non – discriminatory Treatment). The scope does for example not extend to Investment Section 4 of Chapter 10 (Investment) of CETA, which covers the subject of Investment Protection.

Further the issue of the ‘necessity test’ is touched upon. Article X(1)(a) of the draft CETA investment text stipulates that ‘a Party may adopt or enforce a measure necessary […]’. According to the IISD report, this brings in the ‘necessity - test’ of trade law.88 In trade law, this has been understood as a balancing test between the measure in question and a possible, less trade restrictive, alternative measure that would achieve the same result.89 It is unclear how this should or could be translated to the investment obligations and it will be up to the arbitrators, with no possibility for appeal, to decide how this has to be interpreted.90

Finally the issue of different remedies is brought to light. The IISD report distinguished between remedies in trade cases and remedies in investment disputes. In a trade case, the remedy of a violation of one of the obligations is that the regulatory measure is brought into conformity with the trade obligations.91 However, in an investment dispute, the remedy often comes in the form of monetary payment.92 The question rises whether the general exception clause in CETA means that if a certain regulatory measure of a State violating one of the obligations that fall under the scope can be justified, this also excludes the State from the obligation to pay a monetary compensation.93 Investment sections that are precluded from the general exceptions include investment protection obligations such as expropriation and compensation for losses.94 This suggests that the general exception clause in CETA cannot prevent that

88

Ibid

89_{William J. Davey, Non – Discrimination in the World Trade Organization: The Rules and Exceptions, (Hague}

Academy of International Law 2012) 275

90_{Supra, note 74 at 4} 91

Supra, note 74 at 4 and J. Ramesh Weeramantry, Treaty Interpretation in Investment Arbitration, (Oxford University Press 2012) 123 92 Supra, note 74 at 4 93 Ibid 94

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a State has to compensate the party that suffered due to regulatory measures. Especially when the interpretative approach will focus on the protection and promotion of investments as the object of investment treaty obligations, it is likely that under the general exception clause of CETA States will still be subjected to the payment of compensation for their justified regulatory measures.95 However, the possibility of being faced with an obligation to pay a monetary award and uncertainty of the law on such an issue can limit the regulatory space of a State because due to such risk the State will not regulate as extensively as initially wanted or not at all.96 Based on this, the intention of the general exceptions of CETA to create more regulatory space can be questioned since they will not exempt a State from the obligation of paying compensation in the case of a violation.97

Chapter 3.1.3 – Final CETA Text

The final CETA text was published 26 September 2014. As already mentioned, the scope of application of the exception clause in the final CETA text applies to the investment section 2 (market access and performance requirements) and section 3 (national treatment, MFN treatment and senior management and board of directors). In article X.02 paragraph 1, reference is made to the incorporation of article XX GATT applying to (among others) Investment Section 2 and 3. In article X.02 paragraph 2 the following is incorporated in the final CETA text:

‘2. For the purposes of […], Investment Section 2 (Establishment of Investments) and Investment Section 3 (Non- Discriminatory Treatment), a Party may adopt or enforce a measure necessary:

(a) to protect public security or public morals or to maintain public order ( x ); (b) to protect human, animal or plant life or health; (c) to secure compliance with laws or regulations which are not inconsistent with the provisions of this Chapter including those relating to: (i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts; (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual

95 Supra, note 11 at 368 96 Supra, note 4 at 226 97

Suzanne A. Spears, ‘The Quest for Policy Space in a New Generation of International Investment Agreements’, (2010) 13:4 Journal of International Economic Law 1037, 1063-4

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records and accounts; (iii) safety; […]’

This clause shows both elements of article XX GATT (for example the introductory paragraph and subparagraph (b)) and, unlike paragraph 1, elements of article XIV GATS (for example subparagraph (a) and (c)). The scope of article X.02 sub 1 and sub 2 CETA with regard to the investment chapter is the same. Both apply to section 2 and section 3 of the investment chapter. The difference between the two subparagraphs is found in the justification grounds. Article X.02 sub 1 CETA refers to Article XX GATT as a whole, and thus contains the justification grounds found in GATT’s general exception clause. Article X.02 on the other hand, contains the justification grounds of article XIV GATS, with some minor modifications. This is a good example of a treaty that incorporates article XX GATT as well as article XIV GATS.98

Article X.02 paragraph 1 refers to article XX GATT as a whole, and thus also the introductory paragraph of article XX GATT, better known as the Chapeau. Interestingly enough, the proposed exception clause in the draft CETA text from November 2013 included a modified version of article XX GATT. Article X.02 sub 2 CETA is strongly modelled on article XIV GATS, without incorporating the chapeau.

Part of the chapeau of article XX GATT reads as follows: ‘[s]ubject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade[…]’.

In the November 2013 draft text of CETA it was proposed to incorporate the text as follows:

‘[…](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 [EU: where like conditions prevail], or

98

Supra, note 23 at 484 and Andrew Newcombe, ‘General Exceptions in International Investment Agreements’ (BIICL Eight Annual WTO Conference, London, 13-14 May 2008), 2

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(ii) a disguised restriction on international [CAN: trade] or investment.’

Thus, where the chapeau of article XX GATT would seem unsuitable for investment disputes (referring to ‘countries where the same conditions prevail’, ‘restriction on international trade’), the draft text changed this to make the text more appropriate for investment obligations (referring to ‘discrimination between investments or between investors’, ‘disguised restriction on international […] investment’).99

However, the first thing that stands out in article X.02 sub 1 of the final CETA text, is that it leaves open the question whether the chapeau of article XX GATT should be applied to investors between which the same conditions prevail, or between investments, or between both.100 It simply refers to article XX GATT, without any modification to the chapeau. Although interpreting the treaty in an investment dispute can easily solve this, the question remains why the drafters ended up referring to article XX GATT as it is instead of solving this minor issue in the final text of CETA, as done in the draft CETA text.101 What is noteworthy with respect to this issue is that the Canada model BIT has a general exception modelled to the general exception of article XX GATT, but with a modified chapeau to make it more suitable for investment disputes.102 Further, as will be discussed below, the European Union has also modified this text in the EU – Singapore Free Trade Agreement (although this agreement is negotiated after CETA).103 The question remains why this is not foreseen in in the CETA general exception clause.

The parties to CETA also incorporated rules on treaty interpretation. As far as the investment obligations are concerned, CETA offers the opportunity of establishing a tribunal under the Investor State Dispute Settlement Chapter. Section 6 of Chapter 10 (Investment) of CETA covers this specific dispute settlement mechanism. With regard to the interpretation conducted by such a tribunal, the relevant part of article X.27 of the Investment Chapter stipulates that:

99 Supra, note 74 at 2 100 Supra, note 3 at 11-12 101 Ibid 102

Article 10 Canada model FIPA 2004

103

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‘A Tribunal established under this Chapter shall render its decision consistent with this Agreement as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties.’104

The general exceptions that can be invoked are not part of the investment chapter, but are incorporated under the Chapter 32 (Exceptions) CETA. As article X.27 of the Investment Chapter of CETA refers to ‘A Tribunal established under this Chapter’ without limiting the applicable law of such a tribunal to the provisions under the Investment Chapter, the exception clause can be invoked in an investment dispute pending before a tribunal established under article X.27 of the Investment Chapter. When a Tribunal is faced with a dispute under the Investment Chapter in which the exception clause of article X.02 Exceptions Chapter is invoked, the Tribunal has to follow article X.27 of the Chapter 10 (Investment) and thus base its interpretation on those interpretative guidelines.

There is also a general dispute settlement chapter (for dispute settlement between the States and not between an investors and a State) that contains its own interpretative guidelines. In Chapter 33 on Dispute Settlement, the relevant part of article 14.10 reads as follows:

‘The panel shall interpret the provisions referred to in Article 14.2 in accordance with customary rules of interpretation of public international law, including those set out in the Vienna Convention on the Law of Treaties. The panel shall also take into

account relevant interpretations in reports of Panels and the Appellate Body adopted

by the WTO DSB. [...]’105

Since the general exception clause of CETA is not limited to investment obligations it can be invoked in a dispute under Chapter 33 and in a dispute under Chapter 10. Consequently, two different dispute settlement bodies may be faced with the interpretation of the general exception clause, while both are given a different guiding on how to interpret the provisions before them. One striking difference is that under Chapter 33 there is a clear reference to the relevant interpretations in reports of Panels

104

Emphasis added

105

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and the Appellate Body of the WTO, which is not included in the interpretative clause of the Investment Chapter.106

Chapter 3.2 – EU - Singapore Free Trade Agreement

Next is the Free Trade Agreement between the European Union and Singapore, still under negotiation. On 20 September 2013 the draft text of this FTA was released.107 Chapter 9 (Investment) of the draft text includes an exception to the National Treatment obligation in article 9.3 paragraph 3 (National Treatment). The exception incorporated in paragraph 3 looks like both articles XX GATT and XIV GATS, and is referred to as the ‘general exception’ clause of the FTA for the purpose of this paper. The structure of the article is similar to article XX GATT and article XIV GATS, with the introduction of the clause by a paragraph that is comparable to the chapeau, followed by different grounds upon which a measure might be justified. As article X.02 CETA, article 9.3 paragraph 3 of the EU – Singapore FTA contains both justification grounds that are comparable to article XX GATT (e.g. article 9.3 paragraph 1 subparagraph (b), (c) and (d)) and to article XIV GATS (e.g. article 9.3 paragraph 1 subparagraph (a) and (e)).

When comparing this general exception clause to the general exception clause in CETA, there are some important differences. The scope of the general exception clause of the EU – Singapore FTA is narrower than the CETA exceptions, as it only applies to the national treatment obligation. Besides that, there is a difference in the wording of the introductory paragraph of the article. Where CETA simply refers to the chapeau of article XX GATT as it is, it seems as if the drafters of the EU – Singapore FTA have used article XX GATT as a basis, but made some modifications to make the exception clause more suitable for investment disputes. Where the chapeau of article XX GATT prohibits ‘arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on trade’, article 9.3 EU – Singapore FTA refers to investors and investments in ‘like situations’ and withholds parties from applying measures that ‘would constitute a

106

Article X.27 Chapter 10 CETA

107

European Commission, ‘Countries and regions: Singapore’ (22 April 2015) <http://ec.europa.eu/trade/policy/countries-and-regions/countries/singapore/> accessed 30 May 2015

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means of arbitrary or unjustifiable discrimination against the investor or investments of the other Party […], or is a disguised restriction on investments […]’108

Apart from an adjusted chapeau, the general exception clause to the national treatment obligation also includes some modified justification grounds. For example, article 9.3 sub 3 under (c) includes a justification ground ‘relating to the conservation of exhaustible resources’, which is also found in article XX(g) GATT. However, in the FTA the justification is adjusted, obliging parties to make sure that the ‘measures are applied in conjunction with restrictions on domestic investors or investments’, instead of referring to ‘domestic production or consumption’ as is seen in article XX(g) GATT.

The Singapore – EU Free Trade Agreement also includes an article on the interpretation of the provisions of the Agreement. As in CETA, there is a provision for dispute settlement between the States and a provision for dispute settlement under the investment provisions between an Investor and a State. The article on State – to – State dispute interpretation refers to Customary International Law and the Vienna Convention on the Law of Treaties for the interpretation of the provisions of the agreement.109 Further, this article stipulates that in the case of a provision that is identical to a provision of a WTO agreement, the panel must – again – ‘take into account’ the relevant WTO jurisprudence.110 However, the agreement also includes a section (Section B) on Investor State Dispute Settlement. This section applies to a breach of an obligation under Section A of the FTA, which includes the National Treatment provision that contains the general exception modelled on article XX GATT. This is an important difference with CETA, where the general exception clause can be subject to interpretation in both a State – to – State dispute and an Investor – State dispute before different dispute settlement bodies and under different interpretative principles. This problem does not exist in the EU – Singapore FTA, where the general exception clause is a paragraph under the National Treatment provision of the Investment Chapter.

108

Emphasis added

109

Article 15.18 Chapter 15 Draft EU – Singapore FTA 2014

110

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Article 9.22 of Section B of the Investment Chapter stipulates the rules of interpretation for an investment tribunal. The relevant paragraph of the article reads as follows:

‘2. Subject to paragraph 3, the tribunal shall apply this Agreement interpreted in accordance with the Vienna Convention on the Law of Treaties and other rules and principles of international law applicable between the Parties.’

Again, no reference to the rulings of the Panels and Appellate Body of the WTO is made. The question rises why in both CETA and the FTA the text shows a clear wish of the parties to use the general exceptions of the General Agreement on Tariffs and Trade for the general exceptions to investment obligations, but the interpretative guidance remains silent on the issue. One possibility is that the parties to the agreements did not want to follow the interpretation of the WTO dispute settlement bodies, but is might also be argued that the interpretation of the general exceptions of the GATT fall under ‘other rules and principles of international law applicable between the Parties’.

The draft text of the EU – Singapore FTA is still pending to be adopted by the European Commission. On 4 March 2015 the European Commission confirmed that it requested the opinion of the European Court of Justice on the Singapore FTA.111

Chapter 3.3 – Canada 2004 Model FIPA

In 2003 the new Canada Model FIPA was approved.112 This Model FIPA is unique because it is the only Investment Agreement of OECD states that included a general exception provision.113 Article 10 of the Canadian Model FIPA includes a general exception provision. Paragraph 1 reads as follows:

‘Article 10 General Exceptions

1. Subject to the requirement that such measures are not applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or

111

European Commission, ‘European Commission to Request a Court of Justice Opinion on the Trade Deal with Singapore’, (News Archive, 4 March 2015) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1269> accessed 30 May 2015

112

113

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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:

(a) to protect human, animal or plant life or health;

(b) to ensure compliance with laws and regulations that are not inconsistent

with the provisions of this Agreement; or

(c) for the conservation of living or non-living exhaustible natural resources.’

The structure of the article is similar to the structure of article XX GATT and article XIV GATS, starting with an introductory clause preventing arbitrary or unjustifiable discrimination or disguised restrictions on international trade or investments. However, the introductory part of the article in the Canada Model FIPA is clearly modified to apply to investment and investors and solves the problems that have been encountered in the general exception clause of CETA. The article does not speak of ‘countries where like conditions prevail’ but of investments and investors wherever is relevant. As for the grounds in article 10 Canada Model FIPA, all measures need to be ‘necessary’. Unlike article XX GATT, there is no reference to measures ‘relating to’ any of the justification grounds. Also sub (a), (b) and (c) are the same as respectively article XX (b), (d) and (g), with some modifications.

As for the scope of the article, the general exception clause in the Canadian Model FIPA applies to all the obligations in the agreement, including expropriation, unlike the similar provision in CETA and the EU – Singapore FTA.114

The governing law is found in article 40 of the Canada Model FIPA, which stipulates that tribunals must interpret in accordance with ‘this Agreement and applicable rules of international law’. Again, this is quite a broad reference and it is not very clear what could be part of ‘applicable rules of international law’. It doesn’t limit the applicable rules to applicable rules between the parties to the agreement. A clause on the governing law that refers to the treaty itself and international law is not uncommon in Investment agreements and is also found in article 1131 NAFTA.115 The Methanex Tribunal ruled that in any case article 31 and article 32 VCLT fall

114

Article X.02 Chapter 32 CETA 2014 and article 9.3 subparagraph 2 Chapter 9 Draft EU – Singapore FTA 2014

115

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within the scope of article 1131 NAFTA, and thus possibly also under article 30 of the Canadian Model FIPA.116

Chapter 4 – Interpretation

As the incorporation of general exceptions modelled on article XX GATT/XIV GATS in investment agreements is gaining ground, the question that rises is how such provisions will be interpreted.117 Will the tribunal faced with the interpretation of these general exceptions fall back on WTO dispute settlement interpretation or will it develop an individual line of interpretation?

Newcombe identifies three general approaches to the interpretation of general exceptions modelled on article XX GATT and article XIV GATS with regard to investment obligations:

i. General exceptions as codifications of the type of exceptions that are already recognized in IIA jurisprudence.118

ii. General exceptions as provisions that should be interpreted strictly and provide less regulatory flexibility to host States, which reflects the purpose of the objective of an investment treaty in general.119

iii. General exceptions as provisions that are to provide greater regulatory flexibility to host States in pursuing the specific legitimate objectives established in the exceptions (the effet utile approach). This approach, according to Newcombe, would highlight the intention of the parties to create more regulatory space within the investment obligations.120

The first interpretative approach as proposed by Newcombe is to see the general exceptions as codifications of exceptions already recognized in IIA jurisprudence.121 The National Treatment obligation has been interpreted as leaving space open for regulatory measures taken by a State in light of the public purpose.122 One example of

116_{Methanex Corporation v. United States of America (Final Award of the Tribunal on Jurisdiction and Merits), 3}

August 2005, Chapter B Part II para. 17

117_{Supra, note 23 at 483} 118 Ibid 503 119 Ibid 120 Ibid 121 Ibid 122 Ibid

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this is the Pope & Talbot Inc. v. Canada case in which a US Company (Pope & Talbot Inc.) with a subsidiary in Canada filed a dispute against Canada under chapter 11 NAFTA. The subsidiary of Pope & Talbot Inc. that produced soft lumber wood in Canada exported the majority of the product back to the US.123 Once it was faced with a fee that had to be paid over the exported product due to an agreement between the US and Canada that only applied in certain provinces of Canada, the investor claimed that Canada violated its obligations under (amongst others) Article 1102 Chapter 11 NAFTA.124 The tribunal in this case argued that although presumptively differentiating between national and foreign investors would indeed constitute a breach of the national treatment requirement, this is not always necessarily the case.125 According to the tribunal in the Pope & Talbot Inc. v Canada case, differential treatment could be justified if it was reasonably connected to ‘rational governmental policies that (1) do not distinguish, on their face or de facto, between foreign-owned and domestic companies, and (2) do not otherwise unduly undermine the investment liberalizing objectives of NAFTA.’126 The tribunal further argued that an approach focusing on the like circumstances question would address any form of different treatment, and wouldn’t solely focus on different treatment based on nationality.127 The tribunal in the S.D. Myers v Canada case was confronted with a similar claim, also based on article 1102 (National Treatment) of NAFTA.128 In this case, the tribunal argued that ‘the interpretation of the phrase “like circumstances” in Article 1102 must take into account […] circumstances that would justify governmental regulations that treat them differently in order to protect the public interest’.129 In the Pope & Talbot Inc. v Canada case, the tribunal eventually ruled that article 1102 NAFTA was not violated because Canada had reasonable reasons for not applying the agreement in several provinces, and therefore the firms in covered provinces and non – covered provinces were not in like circumstances.130 This shows that investment tribunals have realized there might be some room for differentiating between circumstances based on public policy objectives.131

123

Pope and Talbot Inc. v. The Government of Canada, (Interim Award) 26 June 2000, para. 4 and 5

124_{Pope & Talbot Inc. v The Government of Canada, (Award on the Merits of Phase 2) 10 April 2001, para. 22} 125 Ibid para 78 126_Ibid 127 Ibid para. 79 128

S.D. Myers Inc. v. Government of Canada (Partial Award), 13 November 2000, para. 130

129

Ibid para. 250

130

David Gantz, ‘Pope & Talbot, Inc. v. Canada’ (2003) 97 The American Journal of International Law 937, 942

131

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For the second approach support in case law can also be found.132 In the Canfor

Corporation v. USA and Terminal Forest Products LTD v. USA the tribunal expressly

referred to a WTO case (Canada – Import Restrictions on Ice Cream and Yoghurt) when interpreting the exception possibilities in that particular case.133 The tribunal argued that any exception in international instruments has to be interpreted narrowly.134 Support for this approach is further found in the Enron Corporation and

Ponderosa Assets, L.P. v. Argentina, in which the tribunal highlighted the aim and

object of the BIT.135 The Tribunal argued that:

‘the object and purpose of the Treaty […] require the protection of the international guaranteed rights of its beneficiaries. To this extent, any interpretation resulting in an escape route from the obligations defined cannot be easily reconciled with that object and purpose. Accordingly, a restrictive interpretation of any such alternative is mandatory.’136

This approach is fundamentally different from the approach of the WTO dispute settlement bodies upon interpreting the general exception clauses. The Appellate Body has ruled the opposite and consistently rejected panel jurisprudence on the restrictive interpretation of article XX GATT.137 Several panels have interpreted article XX GATT in a restrictive manner based on their views of the object and purpose of the GATT.138 One example of this is the famous ‘US – Shrimp’ case, in which the panel formulated a test that had to define a ‘category of measures which,

ratione materiae, fall outside the justifying protection of Article XX’s chapeau.’139

The Appellate Body did not agree with this interpretive approach, and found that this test as construed by the panel had no basis in article XX GATT whatsoever.140 According to the Appellate Body, this interpretation would render ‘most, if not all’ of the exceptions in article XX GATT useless and was not in line with the ‘principles of

132

133

Ibid 362 and Canfor Corporation v. USA and Terminal Forest Products LTD v. USA (Decision on Preliminary Question) 6 June 2006, para. 187

134_{Supra, note 11 at 362} 135

136_{Enron Corporation and Ponderosa Assets, L.P. v. Argentina (Award), 22 May 2007, para. 331} 137

138

Ibid

139

United States – Import Prohibition of Certain Shrimp and Shrimp Products (Appellate Body Report), 12 October 1998 para. 121

140

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interpretation’ that the dispute settlement bodies of the WTO should apply.141 The principles referred to by the Appellate Body are the interpretative principle of the Vienna Convention on the Law of Treaties.142

Thus, tribunals have, as opposed to WTO dispute settlement bodies, argued in investment disputes that exceptions to investment obligations should be read in a restrictive way, which they find to be consistent with the object of protecting investments.143 This would result in a different interpretative line than in the case of the general exceptions with regard to trade obligations, where the general exceptions are regarded to be a balancing provision between trade liberalisation and legitimate policy objectives that a State may wish to regulate.144 Some tribunals have added an even greater constraint on the use of WTO jurisprudence as guidance for interpretation in the investment context. One example of this is the Methanex case. Although this case concerned the interpretation of ‘like products’, it shows that the tribunals were reluctant to rely on WTO jurisprudence for their own interpretation.145 The tribunal in this case argued that if the parties to the agreement were well aware of the use of the term ‘like products’ in the GATT and if they had meant for ‘like products’ in NAFTA to have a similar meaning, the parties would have clearly stated so.146

Ideally, general exceptions to investment obligations should be interpreted as the Appellate Body has interpreted trade exceptions, namely as a way of affirming the right to regulate by a State.147 This reflects the third interpretative approach that is mentioned by Newcombe.148 This option is argued to be the preferred method to interpret the general exceptions in investment agreements because the general exceptions are almost completely the same as the article XX GATT and/or article XIV GATS exceptions.149 It makes sense that when the drafters of a treaty incorporate general exceptions to investment modelled strongly on article XX GATT

141

Ibid

142

Kate M. Supnik, ‘Making Amends: Amending the ICSID Convention to Reconcile Competing Interests in International Investment Law’, (2009) 59 Duke Law Journal 343, 364

143 Supra, note 23 at 484 144_{Supra, note 29 at 574} 145 Supra, note 23 at 173 146

Supra, note 116 at Part IV – Chapter B para. 33-34 and 37

147 Supra, note 23 at 486 148 Ibid 503 149 Ibid 503-4

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and/or article XIV GATS, they do so with the intention that the clause(s) will fulfil a similar role with regard to the investment obligations as the articles do in the trade law context.

The Appellate Body has spoken out on the object of article XX GATT and the role that it fulfils to trade obligations. In the US – Shrimp case the Appellate Body argued with regard to the interpretation of the chapeau of article XX GATT that ‘a balance must be struck between the right of a Member to invoke an exception under article XX and the duty of that same Member to respect the treaty rights of the other Members.’150 The Appellate Body further stressed in paragraph 121 of the same case that a common aspect of the measures that fall within the scope of the exceptions of article XX GATT is that these measures are unilaterally imposed by one State for other State’s to comply with.151 This balancing of different interests does not reflect a restrictive interpretation of the general exceptions found in article XX GATT by the Appellate Body.152 And although earlier reference was made to the difficulty of completely justifying a measure taken by a State under article XX GATT (and XIV GATS), the invocation of the general exceptions under a WTO Dispute has often led to a (minor) modification of such measures instead of complete withdrawal, and thus facilitating the regulatory powers of a State.153

This approach is not completely new in the investment context. There have been tribunals that favour a more balanced approach towards general exceptions to investment obligations. One example of this is the tribunal in the Saluka case argued in favour of a more balanced test, stating that the protection investors and investments is not the sole aim of an investment treaty.154 Further, as opposed to the Methanex tribunal, the tribunal in the Continental Casualty case argued that for the interpretation of ‘necessity’ in that case it would be more fitting to follow the precedents of the WTO Dispute Settlement Bodies, because the provision in question reflected the formulation of article XX GATT.155

150_{Supra, note 139 at para. 156} 151 Ibid para. 121 152 Supra, note 29 at 547 153 Supra, note 3 at 4 154

Saluka Investments B.V. v. The Czech Republic (Partial Award), 17 March 2006, para. 300

155

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Other advantages of a similar interpretation is that there is a unified approach for the interpretation of the general exceptions that all investment tribunals faced with such clauses under different investment treaties can rely on, and that immediately several interpretative issues (such as the burden of proof) are solved.156

However, in practice, some issues might come up. Tribunals have one case to their availability they could rely upon when they decide to follow this line of interpretation. The tribunal faced with the S.D. Myers Inc. v. Canada case under the North Atlantic Free Trade Agreement explicitly addressed article XX GATT in its judgement. In this case, S.D. Myers Inc. filed claims against Canada based on alleged violations of article 1102, 1105, 1106 and 1110 NAFTA.157 According to S.D. Myers Inc., Canada violated these provisions through its ban on the export of PCB wastes to the United States of America.158 However, Canada argued that ‘the measure was made because Canada believed PCBs are a significant danger to health and the environment when exported without appropriate assurances of safe transportation and destruction’.159 Canada continues by arguing with regard to article 1106 NAFTA that the exception of that article applies, because the measure is ‘necessary to protect human, animal or plant life or health or was necessary for the conservation of living or non – living exhaustible resources’.160

In paragraph 298 the tribunal addresses the question of whether the measure of Canada could be justified by article XX GATT. First of all the tribunal sets out that article XX GATT does not apply in the case.161 However, it continues by stating that if the general exception clause of the GATT were to apply, the Canadian measure could not be justified under it, as the measure would not satisfy the requirements set out in the chapeau.162 In the same paragraph there seems to be an implicit reference to the ‘necessity test’.163 Looking at the defence of Canada, this would translate under GATT law as an appeal to article XX(b) GATT, ‘necessary to protect human, animal or plant life or health’. As mentioned before, the ‘necessity test’ has been read as a

156_{Supra, note 23 at 504} 157

Supra, note 128 at para.129

158_{Ibid para. 123} 159 Ibid para. 152 160 Ibid para. 155 161 Ibid para. 298 162 Ibid 163 Ibid

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balancing test between the measure in question and a possible less trade restrictive alternative.164 When read in this context, one argument against the justification of Canada could be that they might have been able to incorporate rules to ensure the safe transportation and destruction of the material. The tribunal makes a rather ambiguous argument here. It starts by stating that ‘…the Orders are not protected by either article XX(b) (Human, Animal or Plant Life) or Article XX(e) (Conservation) of GATT’.165 So at this point, the tribunal looks at whether the measure of Canada falls under one of the grounds of article XX GATT, which it accordingly does not. Then the tribunal continues by stating that ‘[t]he measures taken by Canada would not satisfy the requirements of the chapeau of Article XX (General Exceptions)’.166 Finally, the tribunal concludes its argument by stating that:

‘Canada could have satisfied any health or environmental concerns it has in a manner that did not impair open trade. […] it would have better served the cause of environment if it [Canada] had kept the Canadian border open, but put in place safeguards.’167

It seems as if, at the end of its argument, the Tribunal applied the necessity test, which as been explained as an obligation for States to implement the least trade restrictive measure.168 However, if the tribunal applied that analysis, it has failed to apply the correct article XX GATT test when referring to the article in the S.D. Myers Inc. v.

Canada case. Article XX GATT has been interpreted in a two – tiered manner.169 The first step is looking at the question whether the measure that is to be justified falls under one of the grounds of article XX GATT.170 As article XX(b) refers to the measure being ‘necessary to’, it encompass the so-called necessity test.171 Article (e) (although the Tribunal refers to ‘Conservation’, so it probably means article (g), which is constructed in the same manner as ground (e)) refers to ‘relating to’. If the measure in question falls under one of the exception grounds of article XX GATT, the measure has to pass the chapeau of the article. In the SD Myers case, the tribunal

164_{Supra, note 89 at 77} 165 Supra, note 128 at 298 166_Ibid 167 Ibid 168 Ibid 169 Supra, note 29 at 552 170 Ibid 171 Supra, note 89 at 267

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seems to mix up this order, by first looking at the grounds in article XX(b), then referring to the chapeau, and then looking at alternative measures that Canada could have implemented that would not ‘impair open trade’.172 It would have been better if the tribunal had shaped its argument along the lines of the interpretation of article XX GATT by the WTO, thus in a two tiered manner by looking first at the grounds and then at the chapeau separately. If tribunals would decide to adopt the WTO interpretation on general exceptions, they might be tempted to follow the interpretation used by the tribunal in the S.D. Myers Inc. v. Canada case because there is an explicit reference to article XX GATT. However, this would be problematic because the S.D. Myers tribunal has attempted to hypothetically apply article XX GATT to the dispute, but failed to do so flawlessly by not following the two – tiered analysis and not addressing the ‘relating to’ requirement.173

It can be concluded that in general the approach of investment tribunals towards exceptions in investment agreements is different from the approach of the WTO dispute settlement bodies. Where the Appellate Body has stressed the importance of the right to regulate of a State, investment tribunals have generally taken a more restrictive approach towards the use of exceptions in investment disputes. Further, the

Methanex case indicates that Tribunals are reluctant of relying on WTO case law,

unless the parties to an agreement have explicitly stated that the WTO jurisprudence should be used.

Chapter 4.1 – Treaty interpretation rules in the relevant agreements

It seems as if the general approach found in case law of investment tribunals to exceptions is to construe them narrower than the approach of the WTO Dispute Settlement Bodies. However, how would this evolve when the general exceptions in investment agreements are modelled to the general exceptions of WTO Agreements?

All three treaties discussed in this paper have incorporated provisions on treaty interpretation, which will play an important role in forming the interpretation approach with regard to the general exceptions to investment obligations in these agreements. The relevant interpretation provisions are in CETA article X.27, in the

172

Supra, note 128 para. 298

173

The interpretation of WTO – like general exceptions in investment agreements