1 Indirect expropriation and the right to regulate under the Investment chapter of
EU-Canada CETA By
Hernán Mariano Fernández Trelles
Supervisor Vladislav Djanic, LL.M.
Thesis submitted in partial fulfillment of the requirements for the degree of:
Master in Public International Law: Trade and Investment Law UNIVERSITEIT VAN AMSTERDAM
FACULTY OF LAW
2 Abstract
Even though expropriation of alien property is an undisputed sovereign right, still no one has come up with a fully satisfactory mean to determine a clear dividing line between indirect expropriation and governmental non-compensable regulatory action for protecting welfare interests of society. In a context of significant transformation of International Investment Law, states intend to vindicate their right to regulate and pursue legitimate public policy objectives by resorting to a more clear and precise language, rather than the laconic wording used by traditional Bilateral Investment Treaties (BITs). Moreover, the focus is now placed at a regional level, where International Investments Agreements are being negotiated and concluded, in an attempt to overcome the fragmentation caused by the numerous BITs. It was suggested that the recently concluded Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada introduced innovative language which provides guidance for clearly determining what constitutes "indirect expropriation". However, by a descriptive and conceptual analysis of CETA’s Article 8.12 and Annex 8-A, it can be concluded that not much has changed. CETA adopts a similar legislative technique and wording of the BITs based on the United States Model BIT and Canada Model BIT. Although some adjustments have been introduced, providing more substance to the usual wording, still many aspects of said Annex entail vagueness and ambiguities which will provide arbitrators with the discretion to justify different approaches when assessing indirect expropriation. Furthermore, when dealing with expropiratory claims under CETA, in our opinion arbitral tribunals will not be in a better position than those relying in existing arbitral case law.
3 Table of contents
1) Introduction
2) Overview of Expropriation
3) New generations of International Investment Agreements
4) European Union-Canada Comprehensive Economic and Trade Agreement 4.1) Indirect expropriation under CETA
4.2) Analysis of the legislative technique of article 8.12 and Annex 8-A 4.2.1) First paragraph
4.2.2) Second paragraph
4.2.2.1) The economic impact of the measure
4.2.2.2) The interference with investment backed expectations 4.2.2.3) The duration of the measure
4.2.2.4) character of the measure, notably their object, context and intent 4.2.3) Third paragraph
4.2.3.1) Should the proportionality test be applied? 4.3) Comparative analysis with other regional IIAs 5) Conclusion
6) Bibliography
Annex I: CETA Article 8.12 Annex II: CETA Annex 8-A
4 1) Introduction
Under Public International Law, although expropriation is undisputed, tribunals have interpreted and reinterpreted it within the words of the numerous International Investment Agreements (IIAs). Consequently, such standard evolved surrounded by controversy, especially concerning “indirect expropriation”. In this last case, its unprecise boundaries still make uncertain who must bear the economic burden of attending to the public interest involved in the state’s measure.1 As arbitral practice showed, said imprecision resulted in problematic situations where tribunals qualified as expropriatory measures adopted by states with superior interests in mind, such as environmental or health protection (e.g Metalclad v Mexico, Biwater Gauff v Tanzania),2 or even general monetary policies to mitigate a financial crisis (Vivendi v Argentina).3
In the context of a legitimacy crisis,4 states intend to improve the traditional less precise investment treaty norms, resorting to a more substantial language to establish a better balance between the states’ and investor’s rights. In a pressing need for a systematic reform of the international investment system, among other regional IIAs, the European Union (EU)5-Canada Comprehensive Economic and Trade Agreement (CETA) was
signed (on 30 October 2016) and afterwards ratified (on 15 February 2017) by the European Parliament.6 It has been asserted that CETA introduces important innovations in the fields of
International Investment Law (IIL) and Investor-State Dispute Settlement (ISDS), ensuring a high level of protection for investors while fully preserving the right of governments to regulate and pursue legitimate public policy objectives, and specifically, it was stated that makes clear what constitutes "indirect expropriation".7
The objective of the present research is to analyse the expropriation provision (and its Annex) of CETA’s Investment Chapter to demonstrate that the new agreement does not entail any real innovation in the area. We will try to identify if within the
1 Rosalyn Higgins, 'The Taking of Property by the State: Recent Developments in International Law' (1982) 176
Collected Courses of The Hague Academy of International Law 267, 276-277
2 Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000;
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008
3 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No.
ARB/97/3, Award, 20 August 2007
4 'IIA Issues Note: Taking Stock of IIA Reform' [2016] United Nations Conference on Trade and Development
(UNCTAD) 1
5 With the entry into force of the Treaty of Lisbon in 2009, the competence over the conclusion of foreign direct
investment agreements was transferred from the Member States to the European Union.
6 'European Commission - Press Release - European Commission Welcomes Parliament's Support of Trade Deal
with Canada' (Europa.eu, 2017) <http://europa.eu/rapid/press-release_IP-17-270_en.htm> accessed 20 March 2017.
7 European Commission, ‘Investment provisions in the EU-Canada free trade agreement (CETA)’ (Europa.eu,
5
wording article 8.12 and Annex 8-A new elements have been introduced that might allow -as it has been alleged- to set a clear boundary between indirect expropriation and the states’ right to regulate.
To set forth the complexities and novelties of the topic, in the second and third section of this paper, a succinct overview of expropriation and a brief introduction to the new generation of IIAs will be presented, respectively.
In the fourth section, by a descriptive and conceptual analysis of the relevant provisions, we will assess the legislative technique based on doctrinal and case-law research. Looking at the wording employed, we will determine if new elements have been introduced which might allow a clear assessment of expropriation when dealing with regulatory measures, or if at least provides solutions to some of the issues that remain disputed. In the process, we will compare its drafting with the one employed by traditional Bilateral Investment Treaties (BITs), as well as identify if similar terminology was used in other IIAs and how it has been interpreted by tribunals and commentators.
Particularly, we will look at the application of the proportionality test, which -after being introduced by tribunal practice- has been identified by some as a highly relevant tool in the assessment of indirect expropriation.8 We will try to determine if from the text of CETA emerges a weighing and balancing and if so, what process it would entail.
Finally, considering the results of this research proposal, we will evaluate if there may be an impact on the concept of indirect expropriation as it has been developed by tribunals.
2) Overview of Expropriation
Nowadays, it is undisputed that expropriation of alien property is legitimate.9 Even though considered a sovereign right, it is not absolute one, as under Customary International Law (CIL) the minimum standard of protection limits the host state’s right to expropriate alien property.10 As reflected in most BITs, expropriation is acknowledged and its legality is conditioned by four requirements.11
8Caroline Henckels, 'Indirect Expropriation and The Right to Regulate: Revisiting Proportionality Analysis and
The Standard of Review in Investor-State Arbitration' (2012) 15 Journal of International Economic Law 223, 224
9 Malcolm Nathan Shaw, International Law (7th edn, Cambridge University Press 2015) 602
10 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, Oxford University
Press 2012) 98
11 Dolzer and Schreuer (n 10) 99; Anne K. Hoffmann, '“Indirect Expropriation”, Standards of Investment
Protection' in August Reinisch (ed), Standards of investment protection (Oxford University Press 2008) 151; The measure must: (i) serve a public purpose; (ii) not be arbitrary and discriminatory; (iii) observe the principles of due process; and (iv) be accompanied by a prompt, adequate and effective compensation.
6
Due to BIT proliferation and the desire to protect the investment climate,12 formal expropriation has become rare and the controversial question of the required level of compensation was demoted to the background. Consequently, indirect expropriation acquired relevance, placing the focus of debate on disputes related to states’ regulations which impact on investors’ rights.13
As indicated ut supra, even though expropriation involves the taking of property within certain conditions, states’ measures which have an impact on investments (e.g. revocation of a license, banning the sale of certain product, enacting legislation regulation macroeconomic policies) may also be qualified as expropiatory.14 How to define “indirect expropriation” is a question thathas been at the forefront of IIL for some time.15 Practice shows that “indirect expropriation” has never lent itself to a clear definition, as still no one has come up with a fully satisfactory mean for determine a clear dividing line.16
Establishing when a governmental regulatory action (for protecting the environment, health and other welfare interests of society) that interferes with the property rights of a private investor crosses the threshold from a non-compensable to a compensable taking is a complex exercise. It should be stressed that such assessment cannot be reduced to a mechanical process, defined by a certain percentage of deprivation, not only because setting a numerical threshold would be arbitrary, but also because it depends on how the term “investment” is interpreted.
Conceptually, an indirect expropriation17 is the result of the state’s interference with the investor’s ownership, which even though leaves the investor’s title untouched, erodes his rights to a degree that deprives him of the possibility of utilizing the investment in a meaningful way. Basically, revolves around the struggle between two forces, the states’ right to regulate in the pursue of their public policy objectives and the investors’ right to enjoy their investment without interference. Moreover, said tension has been exacerbated, mainly due to the active role adopted by states in regulating private property, the increasing number of international obligations taken by states which require to enact regulations;
12 Dolzer and Schreuer (n 10) 98
13 '"Indirect Expropriation" and the "Right to Regulate" in International Investment Law' [2004] OECD Working
Papers on International Investment 2
14 Shaw (n 9) 603
15 Ben Mostafa, 'The sole effects doctrine, police powers and indirect expropriation under international law' (2008)
15 Australian International Law Journal 267, 267; Hoffmann (n 11) 151; Damien Nyer, 'The Investment Chapter of the EU-Canada Comprehensive Economic and Trade Agreement' (2015) 32 Journal of International Arbitration 697, 704
16 Yvette Anthony, 'The Evolution of Indirect Expropriation Clauses: Lessons from Singapore’s BITs/FTAs' [2016]
Asian Journal of International Law 2
17 Indirect expropriation can adopt different forms according to the way it and degree in which it manifests:
7
and the removal of barriers under IIL allowing claims against host states.18 While in some cases
such interference will be an unintended consequence, in others will be a concealed intent of the state. Regardless, under this strain of expropriation, states will typically deny having incurred in such a practice and will not contemplate the payment of compensation.19
Nonetheless, to overcome this lack of clear boundaries, tribunals adopted three different approaches: (i) under the “sole effects doctrine”,20 indirect expropriation will be recognized based only on the severity or significance of the measure’s impact on the investor’s ability to use and enjoy his property, while its purpose is irrelevant.21 As can be seen,
the sole effect is an investor friendly approach;22 (ii) opposed to the sole effect, the “police powers doctrine”23 favors the state’s rights to regulate.24 According to this approach, states would not be liable for expropriations resulting from measures taken in the exercise of its inherent police powers;25 (ii) under Proportionality, when assessing expropriations, the test has been employed as a mean for evaluating and balancing the relationship between the interference of the investor’s rights and the object of the challenged measure, entrusting the tribunal with the authority to take in consideration the particular circumstances in order issue an equitable award.26
While some issues which do not conform the core aspect of expropriation are considered to have been overcome by arbitral tribunals, other remain disputed, such as the states’ intention and the investors’ legitimate expectations.
3) New generations of International Investment Agreements
18 Ben Mostafa (n 15) 270 19 Dolzer and Schreuer (n 10) 98
20 Examples of cases adopting such approach: Tippets, Abbett, McCarthy, Stratton v TAMS-AFFA, Iran-US Claims
Tribunal Case No. 7, Award, 22 June 1984; Metalclad v.Mexico (n 2); Siemens A.G. v. The Argentine Republic, ICSID Case ARB/02/8, Award, 17 January 2007
21 Pope & Talbot Inc. v. The Government of Canada, UNCITRAL, Interim Award, 26 June 2000, at para 102 22 Mostafa (n 15) 267
23 Examples of cases adopting such approach: Sea-Land Services, Inc. v. Iran, Iran-US Claims Tribunal Case No.
33, Award, 20 June 1984; Methanex Corporation v. United States of America, UNICTRAL, Award, 3 August 2005; Saluka Investments B.V. v. The Czech Republic, UNCITRAL Partial Award, 17 March 2006
24 Mostafa (n 15) 267
25 Mostafa (n 15) 272-273; A broad and a narrow criterion of the doctrine sub examine can be identified. Under
the former, any regulation which is bona fide, non-discriminatory and in the interests of public health, safety, morals and welfare to be within the police powers will not be considered expropriatory. By the latter criteria (which has a wider reception by tribunals) the police powers doctrine is not unlimited, the fact that an enacted measure pursues the public welfare, it is not enough to strip it from is expropriatory quality. Under this restrictive view, only measures for tax, crime and the maintenance of the public order fall within the exception of the state’s police power.
26 Henckels (n 8) 226; Ursula Kriebaum, 'FET And Expropriation in the (Invisible) EU Model BIT' (2014) 15 The
8
In the context of an integrated global economy and of a growing legitimacy crisis, the attention is placed again in reviving multilateral efforts to overcome the fragmentation of the investment system caused by an existing dense web of asymmetrical bilateral treaties.27
In this process of transformation, the focus is placed now at a regional level where the ongoing substantive and procedural reforms might serve as a necessary stepping stone towards an eventual multilateral approach of IIL.28 Along with CETA, other notorious regional IIAs that are subsumed in these modern trend are the Trans-Pacific Partnership (TPP), 29 the Transatlantic Trade and Investment Partnership (TTIP), 30 the Regional Comprehensive Economic Partnership (RCEP),31 the ASEAN Comprehensive Investment Agreement (ACIA),32 and the China-Japan-Korea trilateral Investment Agreement.33
Unlike BIT negotiations, regional agreements have been in the public eye and therefore subject to a considerable scrutiny from the public opinion. Hence, they have been surrounded by controversy as they faced a widespread of criticism from civil society, trade unions, and academics; alleging they will harm the economy, the environment, and even will erode the democratic foundations of their societies.34 Nevertheless, it has been asserted that
these regional and mega-regionals IIAs have the potential to overcome the shortcomings derived from the BIT fragmentation, as the renegotiations, common models, joint interpretations, and the consolidation of treaties,35 can promote a more uniform legal
framework.
27 See Dolzer and Schreuer (n 10) 8-11; Frank J. Garcia, Lindita Ciko, Apurv Gaurav and Kirrin Hough,
‘Reforming the International Investment Regime: Lessons from International Trade Law’ (2015) 18(4) Journal of International Economic Law 861, 881
28 Garcia, Ciko, Gaurav and Hough (27) 884
29 The agreement was signed on 4 February 2016 by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico,
New Zealand, Peru, Singapore and Vietnam
30 Agreement negotiated between the European Union and the United States. However, after Donald Trump
assumed the Presidency of the United States on 20th January 2017, the fate of TTIP is uncertain.
31 Agreement negotiated by Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos,
Myanmar, Cambodia, China, Japan, South Korea, India, Australia, New Zealand
32 Agreement drafted ASEAN members for the purpose of establishing an integrated area, creating a stable and
predictable business environment
33 Signed on 13 May 2012, in force since 17 May 2014
34Nick Dearden, 'Think TTIP is a threat to democracy? There’s another trade deal that’s already signed' The
Guardian (30 May 2016) <https://www.theguardian.com/commentisfree/2016/may/30/ttip-trade-deal-agreements-ceta-eu-canada> accessed 18 April 2017; Scott Harris, ‘Another handshake, another deal, still the same secrecy’ (The Council of Canadians, 8 September 2014) <https://canadians.org/blog/another-handshake-another-deal-still-same-secrecy> accessed 18 April 2017; 'EU Commission refuses to revise Canada CETA trade deal' BBC News (23 September 2016) <http://www.bbc.com/news/world-europe-37450742> accessed 18 April 2017; Ernst-Ulrich Petersmann, 'Transformative Transatlantic Free Trade Agreements Without Rights and Remedies of Citizens?' (2015) 18 Journal of International Economic Law 579, 589, 594, 602
9
In this vein, we can see that while traditional BITs rely on very concise wording (dealing with the expropriation standard in one or two paragraphs), regional IIAs tend to resort a more elaborate one, trying to achieve by a “clear and precise” language a better balance between the investors’ rights over their investments and the host states’ sovereign right to pursue public policies to promote public welfare.36 Although both legislative techniques are viable, by using open and less precise investment treaty norms law makers relinquish control over the outcome of their application, granting adjudicators greater authority to make evaluative judgements. Less precise norms, conjugated with pro-investor biased tribunals, tend to have a “chilling effect” as states will avoid enacting legislation out of fear of been subjected to arbitration proceedings. In contrast, highly precise norms tend to increase the level of compliance, and despite they will not assure how arbitrators will resolve a given dispute,37 they are still preferred over concise wording as they will narrow the scope of the provision, leaving less space for inconsistent decisions.
Notwithstanding others important features (e.g. promoting investment liberalization, profound modifications to the ISDS system), one of the main characteristic of these new generation of IIAs is the attempt to recover the lost ground of the sovereign right to pursue public policies (regulatory space or policy space) endured by states due to several setbacks caused by the expansive interpretations of substantive provisions by pro-investor tribunals. Regarding their content, regionals IIAs have been described as the result of the Americanization of the BIT Universe, setting the guidelines for a “brave new American world”.38 This description responds to the fact that the predominant model for substantive rules governing investor-state relations were encouraged by the United States (US) and Canada through the versions of Model BITs they upheld.
4) European Union-Canada Comprehensive Economic and Trade Agreement
36 Stephan W. Schill and Heather L. Bray, 'The Brave New (American) World Of International Investment Law:
Substantive Investment Protection Standards In Mega-Regionals' (2016) 5 British Journal of American Legal Studies 419, 433; Catharine Titi, 'International Investment Law And The European Union: Towards A New Generation Of International Investment Agreements' (2015) 26 European Journal of International Law 639, 654; Caroline Henckels, 'Protecting Regulatory Autonomy through Greater Precision in Investment Treaties: The TPP, CETA, and TTIP' (2016) 19 Journal of International Economic Law 27, 28
37 Henckels (n 36) 32-33 38 Stephan and Bray (n 34) 424
10
CETA was the result of years of negotiations,39 formally initiated after
the EU-Canada summit in 2009.40 Due to its mix nature,41 it is not yet in full force as it will also need to be ratified individually by the national parliaments of the Member States of the EU.42 Even if not ratified, considering the political importance as well as the significant impact it entails in several areas, CETA’s wording should not be overlooked as might constitute a template for future intentions of creating uniform rules in IIL.43
In its legal essence, it was asserted that CETA connotes a policy shift from the Member States “good practices” to the new era of EU’s “better practices”.44 Following the tendency of the new generation of IIAs, CETA’s parties underlined the importance of preserving their policy space within their territories. A major economic player as the EU (and also a party to CETA) recognized the existing imperfections of the actual investment protection system, pointing out that one of the main concern is the abuse of rules preventing countries from making legitimate policy choices.45 Vindicating the right to regulate, the European Commission stressed that there should not be room for interpretative ambiguity, and particularly, the need for clear guidelines when dealing with indirect expropriation.46 As stated under CETA’s Preamble, the parties resolve to “ESTABLISH clear, transparent, predictable and mutually-advantageous rules to govern their trade and investment.”
In this sense, CETA replicates the “innovation” of including a “right to regulate” provision,47 Article 8.9 recites: “…the Parties reaffirm their right to regulate within
their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity”. Rather than entailing an innovation this provision merely
39 Final text was published on 29 February 2016
40 'Canada-European Union Trade Agreement'
<http://eu-canada.com/eu-chamber-text/about-eu-canada-partnership/canada-eu-trade-agreement/> accessed 12 April 2017
41 See Tobias Dolle and Bruno G. Si-mmões, 'Mixed Feelings About “Mixed Agreements” And CETA's
Provisional Application' (2016) 7 European Journal of Risk Regulation 617; see ECJ Opinion 2/15 EU-Singapore FTA (EUSFTA) [2017] ECLI
42 The ratification process could be delayed if Member States’ Parliaments link the ratification to political demands;
Until then, according to Decision N° 10974/16 of the Council of the European Union, CETA will be applied provisionally in regard to the provisions of EU exclusive competence
43 Garcia, Ciko, Gaurav and Hough (n 27) 884; Gabriel M. Lentner, 'A Uniform European Investment Policy?:
The unwritten EU Model BIT (2014) 2 Journal of Law and Administrative Sciences 156, 157
44 Titi (n 36) 641
45 'European Commission - Fact sheet - Investment Protection and Investor-to-State Dispute Settlement in EU
agreements' 2, 5-6 <http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151916.pdf> accessed 14 March 2017.
46 'European Commission- Investment Provisions in the EU-Canada free trade agreement (CETA)'
<http://www.europarl.europa.eu/meetdocs/2009_2014/documents/inta/dv/tradoc_151918/tradoc_151918en.pdf> accessed 20 April 2017
47 Kyle Dylan Dickson-Smith, 'Does the European Union Have New Clothes?: Understanding the EU’s New
11
codifies an inherent sovereign right. Nevertheless, its explicit consideration will constitute a useful guideline for tribunals when adjudicating disputes. In relation to expropriation, besides incorporating a general Article (8.12), it was asserted that CETA resorts to further important clarification through an annex (8-A),48 which will be analysed in detail in the sections that follow.
According to Catharine Titi, “…[i]t is probable that we stand at the threshold of an even newer generation of international investment treaties and one that is set to change the face of international law as we know it”.49 In this sense, the aforementioned author asserts that within CETA we can appreciate innovative language not only in the preamble, but also within the wording of the two most controversial substantive standards: Fair and Equitable Treatment (FET) and Expropriation. In relation to the latter, she states that CETA’s formulation is new, as even though it follows the same criteria as the US and Canadian BITs (i.e. rejecting the sole effects doctrine and instructing tribunals to consider the investor’s “reasonable” expectations of the investor), unlike them “...it introduces a requirement to take into account the ‘character’ of the measure and, notably, its “object, context and intent”, and, significantly, it incorporates the element of proportionality…” employing a new formulation.50
4.1) Indirect expropriation under CETA
As explained, CETA was advertised by some as practically revolutionary, not only in its overall consideration, but particularly regarding "indirect expropriation". It’s so-innovative language was presented seemingly as the much-expected solution. Furthermore, if we resort to the legislative interpretation, the Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States (Document N°13541/16 of the Council of the EU),51 in its item 6 (c) by very concise language is indicated that “CETA includes clearly defined investment protection standards, including on fair and equitable treatment and expropriation and provides clear guidance to dispute resolution Tribunals on how these standards should be applied” (emphasis added).
If we read carefully such positive opinions and affirmations concerning CETA, we can perceive that they fail to give further precisions about the alleged innovative
48 Nyer (n 15) 704 49 Titi (n 36) 661 50 Titi (n 36) 655
51 'General Secretariat of the Council - Joint Interpretative Instrument on the Comprehensive Economic and Trade
Agreement (CETA) between Canada and the European Union and its Member States' <http://data.consilium.europa.eu/doc/document/ST-13541-2016-INIT/en/pdf > accessed 13 April 2017
12
elements that were introduced or the “clear guidance” that was provided. One tends to feel that is just empty rhetoric.
4.2) Analysis of the legislative technique of article 8.12 and Annex 8-A
CETA belongs to the strain of modern IIAs, and as such, the drafting technique employed differs from the concise one that characterizes traditional BITs.52 In its formal aspect, the document composed by 1598 pages, is integrated by thirty chapters and several annexes.
The expropriation provision is crystalized in Article 8.12 (titled “Expropriation”), incorporated under the Section D (“Investment Protection”) of Chapter Eight (“Investments”). In said Article (see Annex I for full text), the first paragraph introduces expropriation using laconic wording. The provision opposes to the use of expropriation by states, unless the four requirements for it to be considered lawful are fulfilled. In this aspect, the Article does not use innovative language, it rather follows the usual wording of BITs. Nevertheless, paragraph 1 in fine indicates that “[f] or greater certainty, this paragraph shall be interpreted in accordance with Annex 8-A”.
Prior to examine Annex 8-A, we should refer to paragraphs 5 and 6 of Article 8.12.53 In this regard, as compulsory licenses granted in relation to Intellectual Property
(IP) can have an adverse effect on the level of return, they constitute specialized circumstances of governmental interference with investor’s rights (directly dependent of the license’s terms) that may be considered as indirect expropriation.54 Paragraph 5, by importing World Trade Organization (WTO) standards,55 embodies a well-accepted carve-out from expropriation of the compulsory licenses granted in accordance with the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Even though such paragraph is not an innovation as it can be seen in IIAs based on the US Model BIT and Canada Model BIT,56 it can rarely be found in the EU Member States’ BITs.57 By assessing the legality and degree of interference that
implies the compulsory license under the criteria of TRIPS Article 31, an overlap is avoided
52 CETA comprises not only investments, but also trade, environmental and labour issues; hence it performs a
cross-section of International Law aspiring to safeguard legal interests of different nature.
53 Regarding the rest of Article 8.12, paragraphs 2 and 3 deal with the issue of compensation when expropriation
has taken place, setting expressly the Fair Market Value as the determined criteria, the guidelines for valuation and the moment in which it should be considered, as well and the calculation of the interests. Paragraph 4 refers to the topic of due process of expropriation, stating the right to access review instances by independent authorities.
54 Christopher Gibson, 'A Look at the Compulsory License in Investment Arbitration: The Case of Indirect
Expropriation' (2010) 25 American University International Law Review 358, 379, 383-384
55 Gibson (n 54) 397-398
56 E.g. US-Rwanda BIT (2008); Canada-Mongolia BIT (2016) 57 E.g. Colombia-UK BIT (2010)
13
between both regimes. Said carve-out avoids corporations from engaging in a “regime shift” of the intellectual property enforcement to the ISDS system (where there is no adequate expertise regarding IP or support providing organ as in other regimes), as a part of a destabilization scheme to protect other interests. However, in practice it does not bar any consideration of compulsory licenses in investment arbitration, as still tribunals will necessarily have to assess if they are TRIPS compliant.
CETA incorporates a sixth paragraph regarding expropriation and IP rights, which has an addition that has not been part of existing BITs.58 The paragraph intends to provide clarification to one relevant issue that has been controversial, i.e. if there is anything left to decide under an IIL analysis where a license failed to meet the TRIPS requirements.59 The provision aims to avoid the use of the ISDS as an appeal mechanism.60 Regarding the language of the paragraph, even though Canada pushed for a particular wording in the negotiations,61 finally the EU imposed its version.62 EU suggested the following alternative: “For greater certainty, the revocation, limitation or creation of intellectual property rights to the extent that these measures are consistent with [TRIPS] and the IPR Chapter of CETA, do not constitute expropriation. Moreover, a determination that these actions are inconsistent with the TRIPS Agreement does not establish that there has been an expropriation.”63 This wording -which is basically the one adopted by CETA- represents the expansion of the scope of safeguards from expropriation when dealing with an IP measure, by which inconsistencies with TRIPS does not in itself imply expropriation.64 Despite this incorporation, CETA does not seem to provide a straightforward solution. Even though, as stated, when inconsistent with the TRIPS Agreement does not establish an expropriation, it is not clear if such issue should be resolved exclusively under the criteria of TRIPS or IIL standards can be used.
Continuing with the analysis, CETA follows the US and Canada Model BIT drafting technique (which at the same time is not new), where the articles are accompanied
58 However, it can be also appreciated in the TTIP (to which the EU is also a party) 59 Gibson (n 54) 398
60 James Gathii and Cynthia Ho, 'Regime Shifting of IP Law Making and Enforcement from the WTO to the
International Investment Regime' (2017) 18 Minnesota Journal of Law, Science and Technology 1, 19; Henning Grosse Ruse-Khan, 'Litigating Intellectual Property Rights in Investor-State Arbitration: From Plain Packaging to
Patent Revocation' (2014) SSRN Electronic Journal
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2463711> accessed on 30 May 2017
61 Canada intended that protection against expropriation “does not apply to a decision by a court, administrative
tribunal, or other governmental intellectual property authority, limiting or creating an intellectual property right, except where the decision amounts to a denial of justice or an abuse of right”
62 Matthew Schewel, 'EU, Canada Fail to close CETA; Stuck Over Issue Related to Eli Lilly Case' (2016) 32 Inside
U.S. Trade
63 Grosse Ruse-Khan (n 60) 40 64 Grosse Ruse-Khan (n 60) 41
14
by annexes to carefully sculpt their scope to preserve states’ regulatory space.65 Furthermore, it
has been considered that they have the additional effect of influencing how existing treaties that do not have such annex are interpreted.66 In particular, Annex 8-A (see Annex II for full text) is composed of three paragraphs, over which the parties confirm their shared understanding. Even though direct expropriation is also defined, clearly the whole Annex sub examine is intended to address particularly the “clarification” of indirect expropriation. Such conclusion could be inferred from the fact that when a direct taking occurs, there is no doubt about it, not only regarding the intent embedded in the governmental act, but also in its exteriorization (the property in transferred to the state). Therefore, guidelines in this sense would be superfluous.
4.2.1) First paragraph
By means of the first paragraph, expropriation is classified in direct and indirect, where the former occurs “…through the formal transfer of title or outright seizure”; and the latter when “…a measure or series of measures of a Party has an effect equivalent to direct expropriation, in that it substantially deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment, without formal transfer of title or outright seizure”.
Particularly in the case of indirect expropriation, the definition starts by employing the term “measures” rather than “actions” (as used in other IIAs, e.g. TPP). “Measures” was widely interpreted by the International Court of Justice, which stated that “…in its ordinary sense the word is wide enough to cover any act, step or proceeding, and imposes no particular limit on their material content or on the aim pursued thereby.”67 If we look at Chapter One of CETA (General definitions and initial provisions), it indicates that such term “includes a law, regulation, rule, procedure, decision, administrative action, requirement, practice or any other form of measure by a Party”. Despite that fact that definitions should not use the same word they are trying to define, it is not clear if the term “measure” is a synonym of “conduct” employed in Article 2 of the International Law Commission Articles on Responsibility of States for Wrongful Acts, which comprises an action or omission.68 Many arbitral decisions relied on a combination of both actions and omissions from the states, while
65 Lise Johnson, 'The 2012 US Model BIT and What the Changes (or Lack Thereof) Suggest about Future
Investment Treaties' (2012) VIII Political Risk Insurance Newsletter, 4 <http://ccsi.columbia.edu/files/2014/01/johnson_2012usmodelBIT.pdf> accessed 20 April 2017; Stephan and Bray (n 34) 434
66 Federico Ortino, 'Defining Indirect Expropriation: The Transatlantic Trade and Investment Partnership and the
(Elusive) Search for ‘Greater Certainty’' (2016) 43 Legal Issues of Economic Integration 351, 354
67 Fisheries Jurisdiction Case (Spain v Canada) [1998] ICJ at para 66
68 Andrew Newcombe and Lluis Paradell, Law and practice of investment treaties standards of treatment (1st edn,
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some have suggested that only actions will be sufficient.69 Even though tribunals will probably
continue to use the former criterion, to avoid any confusion, CETA’s drafters could have been explicit on the matter, indicating if omissions have or not the entity to constitute expropriations. The definition continues by employing the classical wording of “effect equivalent to direct expropriation”. Together with “tantamount” to expropriation, said phrase has been used in the vast majority of BITs. 70 As the “equivalent” effect was not explicitly determined, arbitral tribunals often turned to CIL to determine whether or not such wording expanded the scope of expropriation.71 In turn, CIL has not been a very useful resource for finding an elucidating answer. Even more, such circumstance stripped treaties from the certainty they were supposed to provide.72
In giving meaning to this “equivalence”, tribunals considered that it was necessary to look at the substance and not just the form, and at “…the real interests involved and the purpose and effect of the government measure”.73 As a result, tribunals and commentators used different expressions to reflect the equivalence,74 and although it was asserted that such phrasings could be subsumed under “substantial deprivation”, it is arguable.75
In this vein, after the aforesaid familiar language, CETA’s definition continues: “substantially deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment”. Even though it can be found in the drafting of the TTP and in the EU-Singapore comprehensive Free Trade Agreement,76 such phrase is new. According to the UNCTAD’s database, existing BITs do not employ similar phrase (and it cannot be seen in model BITs). As indicated above, the effects-based substantial deprivation threshold is not an innovation, it has been the prevailing criteria
69 Hoffmann (n 11) 160-161
70 Among others, Canada-Burkina Faso BIT (2015); Mauritius- Egypt BIT (2014); Japan- Saudi Arabia BIT (2013);
Mexico-Belarus BIT (2008); Mexico- Greece BIT (2000); Finland- Zambia BIT (2005); Albania-Slovenia BIT (1997); Although there were some concerns that tribunals would interpret “tantamount” to mean something much less than "expropriation", both terms were interpreted as equal
71 For example, in Generation Ukraine v Ukraine (Generation Ukraine, Inc. v. Ukraine, ICSID Case No.
ARB/00/9, Award, 16 September 2003), the Tribunal considered the prohibition against expropriation as a codification of an existing CIL
72 Mostafa (n 15) 268; Newcombe and Paradell (n 68) 338-339
73 S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award, 13 November 2000, at paras 285-286 74 “removes all benefits of ownership”, “renders property virtually valueless”; “radical deprivation”; “significant
or substantial adverse impact on the value of an investment”; “taking of property”; “affected in such a way that any form of exploitation thereof has disappeared”; “as if the rights had ceased to exist”; “renders rights so useless that they must be deemed to have been expropriated”; “unreasonable”; “interference that deprives the investor of fundamental rights of ownership”.
75 L. Yves Fortier and Stephen L. Drymer, 'Indirect Expropriation in the Law of International Investment: I Know
It When I See It, or Caveat Investor' (2004) 19 ICSID Review 293 (n 74) 306
76 A leaked version of the Regional Comprehensive Economic Partnership shows the use of wording
“…substantially or permanently deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment” <http://www.keionline.org/node/2474> accessed 11 May 2017
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employed by many tribunals when assessing indirect expropriation.77 Therefore, the addition
represents a codification of the case-law approach to the expropriatory equivalence, which will be helpful in narrowing the scope but not radical.
If we look at the meaning of the now explicit threshold, as none of the terms employed are defined in CETA’s Chapter One, according to their ordinary meaning, it refers to the intensity by which one is kept from possessing, enjoying, or using something. Particularly, the extent to which a governmental measure must impact on the investor’s rights to constitute an expropriation.78 Despite the explicit consideration, “Substantial deprivation” is inherently ambiguous,79 as while it does not necessary entail a full deprivation it should be considerable. In this sense, whilst establishing a quite high threshold, tribunals have differed in their approach.80 However, a certain breadth is unavoidable, as -indicated above- a numerical threshold not only would be arbitrary, but also will be conditioned to how “investment” is interpreted.
Regarding the words “fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment”, they refer to the classic Roman Law formulation of ownership (ius utendi, fruendi et abutendi), representing property in all its extension. Again, this wording is not completely unfamiliar to case-law, it is referenced in Pope & Talbot Inc. v. Canada,81 which in turn is taken from Article 10 (3) of the
Draft Convention on the International Responsibility of States for Injuries to Aliens (Draft
77 Pope & Talbot v. Canada (n 21) at para 102; Telenor Mobile Communications A.S. v. The Republic of Hungary,
ICSID ARB/04/15, Award, 13 September 2006, at para 65; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID ARB/01/3, Award, 22 May 2007, at para 245; CMS Gas Transmission Company v. The Republic of Argentina, ICSID, ARB/01/8, Award, 12 May 2005, at paras 262-263; Sempra Energy International v. The Argentine Republic, ICSID, ARB/02/16, Award, 28 September 2007, at paras 284-285; LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID ARB/02/1, Decision on Liability, 3 October 2006, at paras 191-192
78 Markus Wagner, 'Regulatory space in International Trade law and International Investment Law' (2015) 36
University of Pennsylvania Journal of International Law 1, 44
79 Mostafa (n 15) 280
80For example, In the case of Pope & Talbot Inc. v. Canada (at para 102) it was indicated that the interference
had to be sufficiently restrictive as if the property has been "taken" from the owner (at para 102). In Tecmed (at para 115) it was determined by the extent of the loss of the value or economic use of the assets of the investor as if the rights had ceased to exist. Under Bogdanov v Moldova (at para 4.2.5), it was when the measures affected the totality or a substantial part of the investment. In Enron v Argentina (at para 245) it was explained by a series of examples: the deprivation of the control of the investment or of the managing the day-to-day operations of the company, the arrest and detention of company officials or employees, the supervision of the work of officials, the interference with the administration or the appointment of officials and managers, the impediment of distributing dividends. In Metalclad v Mexico and CME v Czech Republic (at para 606) it was considered the interference in whole or in significant part of the use or reasonably to be expected economic benefits of the property. The Tribunal in Venezuela Holdings v. Venezuela (at para 286) considered that the deprivation should be permanent and should involve the total loss of the investment's value or a total loss of its control. Moreover, the ambiguity not only can be seen from a conceptual perspective, but also from a factual one. For example, in the Philip Morris v Uruguay (at para 283), although the claim concerned the trademarks and goodwill associated with the use of trademarks, the Tribunal understood that to determine the expropriatory character of the measure it should consider the impact on the business as a whole.
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Convention). Under said Article the “taking of property” is defined as the “…inference that the owner thereof will not be able to use, enjoy, or dispose of the property within a reasonable period of time after the inception of such interference”. As a result, even though the phrase sub examine is new to the usual wording of expropriatory clauses, it does not constitute a relevant contribution when defining the boundaries of indirect expropriation, rather, it explicitly crystalizes the content of property rights which are susceptible of expropriation.
Up to this point, despite the incorporation of new text, we cannot see any real innovation in the subject matter of indirect expropriation. The addition introduced in CETA represents the crystallization of the Pope & Talbot Inc. v. Canada approach, which although explicitly narrows the criterion by adopting standard of “substantial deprivation”, there will be considerable room for arbitrators to adopt different approaches.
4.2.2) Second paragraph
In its second paragraph, Annex 8-A states: “The determination of whether a measure or series of measures of a Party, in a specific fact situation, constitutes an indirect expropriation requires a case-by-case, fact-based inquiry that takes into consideration, among other factors: (a) the economic impact of the measure or series of measures, although the sole fact that a measure or series of measures of a Party has an adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred; (b) the duration of the measure or series of measures of a Party; (c) the extent to which the measure or series of measures interferes with distinct, reasonable investment-backed expectations; and (d) the character of the measure or series of measures, notably their object, context and intent.”
The treaty moves on to establish a series of factors by which the “case-by-case, fact based inquiry” of indirect expropriation should rely on. CETA sets out a version of the criteria developed by the US Supreme Court in the Penn Central case,82 by which three different factors were considered in a fact-based enquiry (the economic impact of the measure, the interference with investment backed expectations and the character of the governmental action) to determine an expropriation under the Takings Clause of the Fifth Amendment (to the US Constitution) regarding a historic preservation law.83 Even though such criteria have been considered by some to provide effective guidance, others have qualified it as vague, malleable,
82 Penn Central Transportation Co. v. New York City 438 US 104 (1978). The Supreme Court reaffirmed its criteria
in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency. (See Anthony B. Sanders, 'Of All Things Made in America Why are We Exporting the Penn Central Test' (2010) 30 Northwestern Journal of International Law & Business 339, 340)
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and unpredictable, as the factors are not exhaustive and the weight that should be attributed to each one is not clear.84 Furthermore, it was suggested that its increasing popularity was maybe because no one knows what it actually means.85
Regarding treaty law, is not clear why the fact-based inquiry (and factors) was transposed from a domestic to an international scenario,86 through the 2004 U.S. Model BIT which was qualified as a "model" of ambiguity.87 Although they inquiry can be seen in IIAs based on the US Model BIT and Canada Model BIT, almost all of EU Member States’ BITs do not contemplate such fact-based enquiry. 88
Despite that is not an exhaustive list (as the paragraph reads “among other factors”), three of the four factors enunciated under the second paragraph of Annex 8-A corresponds to those articulated under the Penn Central case criteria. CETA incorporates as a fourth factor “the duration of the measure or series of measures of a Party”, and in the case of the “character of the measure”, it was expanded by the addition of “…notably their object, context and intent”.
4.2.2.1) The economic impact of the measure
The first of the listed factors states as relevant “the economic impact of the measure or series of measures”, which refers clearly to the adverse impact that the measure adopted by the host state had on the investment. As the provision then explains that the sole effect on the economic value of an investment does not establish that an indirect expropriation has occurred, such factor concerns the effect of the measure, providing for the consideration of the economic impact in the particular case under assessment. Not only it was adopted from the Penn Central case, but also it can be seen in existing IIAs based on the US Model BIT and Canada Model BIT.89
4.2.2.2) The interference with investment backed expectations
The so-called investors' legitimate expectations are contained in the second paragraph of Annex 8-A, as the interference of “distinct, reasonable investment-backed expectations” is determined as a yardstick for indirect expropriation assessment. 90 Even though
84 Henckels (n 36) 42 85 Sanders (n 82) 344 86 Sanders (n 82) 343 87 Sanders (n 82) 363-364 88 See Colombia-UK BIT (2010)
89 E.g. US-Uruguay BIT (2005); Canada-China BIT (2012)
90 Suzy H. Nikièma 'Best Practices Indirect Expropriation' [2012] The International Institute for Sustainable
Development (IISD), 12 < http://www.iisd.org/pdf/2012/best_practice_indirect_expropriation.pdf> accessed 13 May 2017
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it is arguable whether such factor is part of the general principles of law,91 tribunals have
appealed to it when interpreting and applying standards of protection,92 not only when determining whether an indirect expropriation has occurred but also when assessing FET breaches. Even though the doctrine of “legitimate expectations” has been widely analysed in the context of foreign investment protection, its contours still appear to be quite blurry.93 Furthermore, tribunals avoid enquiring into the origin and legal basis of said factor, taking it for granted by relying on previous awards which have referred to it.94
CETA’s wording reflects the approach adopted by the US Supreme Court at a local level regarding a domestic case. The factor was introduced to the judicial lexicon of the Taking clause by Justice Brennan in Penn Central case.95 Even though by such introduction the Court intended to tilt the taking theory favoring the property owner's investment rather than government's interests, landowners were required to make an investment of a certain degree to create vested right which enjoyed protection.96 It was suggested that the reference to "distinct, reasonable investment-backed expectations" was introduced due to a discrepancy in the property susceptible of expropriation, by which the US practice intended to compensate the exclusion of goodwill and licenses, authorizations, permits, and similar rights, which do not create any rights protected under domestic law.97 Therefore, its incorporation has the purpose of equating the international protection to the domestic protection pursuant to US case-law.98
Regarding the precise wording, while in the referred case the Court held that the expectations protected by the taking clause must be “distinct”, in later cases the notion of “reasonable” was introduced.99 According to their ordinary meaning, the former term implies
presenting a clear unmistakable impression,100 i.e. the expectation must have some concrete manifestation; while the latter term stands for fair, proper, or moderate under the circumstances,101 implying that the expectation must be appropriate under the circumstances
91 Dolzer and Schreuer (n 10) 115
92 Anna De Luca, 'Indirect Expropriations and Regulatory Takings: What Role for the “Legitimate Expectations”
Of Foreign Investors?' (2013) SSRN Electronic Journal, 4 <https://ssrn.com/abstract=2524925> accessed 22 March 2017
93 De Luca (n 92) 4-5
94 Michele Potestà, 'Legitimate expectations in investment treaty law: Understanding the roots and the limits of a
controversial concept' [2013] ICSID Review 88, 88-89
95 Daniel R. Mandelke, 'Investment-Backed Expectations: Is There a Taking? (1987) 31 Journal of Urban and
Contemporary Law 1, 3; Justice Brennan illustrated the investment-backed expectations by discussing Pennsylvania Coal Co. v. Mahon, however, the phrase does not appear in it.
96 Mandelke (n 95) 10 97 De Luca (n 92) 14 98 Ibidem
99 Mandelke (n 95) 14
100 'Merriam-Webster Dictionary' < https://www.merriam-webster.com/dictionary/distinct > accessed 8 May 2017 101 Bryan A Garner, Black’s Law Dictionary (8th edn, Thomson West 2004)
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and, according to the US Supreme Court, may require a balancing test that weighs public benefits against private costs.102
Particularly, CETA does not entail any innovation, it repeats the exact words that have been used until now and that were developed by the domestic Court of the US. In arbitral practice, tribunals have differed regarding the extent of investor’s expectations that should be protected, whether if it should cover specific investment-related commitments that were later disowned by the host state, or general investment promotion policy. Even more, it has been questioned if the doctrine of legitimate expectations should play any role in the law governing indirect expropriations, as under General International Law whether goodwill could be indirectly expropriated is still an open question. 103
In other cases, like the TTIP or the IISD Model International Agreement on Investment for Sustainable Development, the investment-backed expectations were not included. If -as stated above- the intention of CETA was to eliminate the interpretative ambiguity and vindicate the right to regulate, it should have adopted a more restrictive language to clarify the extension of the factor sub examine. For example, as we will see ut infra, in ACIA’s Annex 2 the expression investment-backed expectations was eliminated, replacing it with the “prior binding written commitments” of the state to the investor.
4.2.2.3) The duration of the measure
In comparison with existing BITs (or Model BITs) which adopt the fact-based enquiry, the “duration of the measure” constitutes a new factor introduced by CETA’s drafters. Under its formulation, the addition does not bring nothing relevant to the assessment of expropriation. Regarding the durational aspect of the interference, under IIL case-law the qualification as expropiatory depended on the subjective evaluative criteria by the appointed arbitrators.104 For example, In SD Myers v Canada, it was considered that in some circumstances a deprivation would amount to an expropriation even it was temporary;105 while in LG&E v Argentina it was required for the interference to be permanent.106
Even if the wording constitutes a new addition, CETA fails to provide any precision on how the durational aspect of the measure should be conjugated when assessing an alleged indirect expropriation. Therefore, its vagueness will allow tribunals to rely on a temporary or permanent approach.
102 Mandelke (n 95) 14 103 De Luca (n 92) 14 104 Hoffmann (n 11) 156, 160
105 S.D. Myers v. Canada (n 73) at para 283 106 LG&E v. Argentina (n 77) at para 193
21 4.2.2.4) character of the measure, notably their object, context and intent
Even though the “character of the measure” already exists within IIAs which follow the US Model BIT and Canada Model BIT, under CETA we see the introduction of new language. Annex 8-A incorporates to said factor the phrase “notably their object, context and intent”.
In the case of the object, according to its ordinary meaning, it refers to the goal or end of an effort or activity, and “purpose” is indicated as a synonym.107 Although such inclusion suggests that it should be considered together with the effects of the measure, no precision is given regarding the intensity that should be searched in their relation. Nevertheless, as we will see in the third paragraph of Annex 8-A, the purpose of the measure is mentioned again, in a more detailed way.
Continuing, if we look at the ordinary meaning of context, it refers to the interrelated conditions in which something exists or occurs.108 Considering that there are no guidelines provided, the context could refer to the economic, financial, political or sociological circumstances. This notion transcends the parties involved (state and investor) and the measure itself, allowing the introduction of a considerable spectrum of variables. If we look at arbitration case-law, the award LG&E v Argentina pondered the necessity of considering the context together with the effect of a measure. In doing so, the Tribunal understood that a balancing approach should be adopted, under which both the causes and the effects must be analyzed.109 Such proposition was qualified as “prudent”, as placing the effects in a broader context would result in more objective awards, rather than in an incomplete analysis that might result bias.110 Despite we agree with said consideration, CETA does not provide any precision on the weight that should be given to the context, nor any indications regarding what the balancing process should entail. Even if the word “context” were not to be explicitly included, any tribunal when assessing an expropriation claim would take -to a greater or lesser extent- it in consideration.
Regarding the intent, tribunals when dealing with indirect expropriation have adopted a similar approach to the weight given to the states’ intent. Even though the effect of the measure is considered the crucial aspect and the intention as non essential,111 some
107 'Merriam-Webster Dictionary' < https://www.merriam-webster.com/dictionary/object > accessed 16 May 2017 108 'Merriam-Webster Dictionary' < https://www.merriam-webster.com/dictionary/context > accessed 9 May 2017 109 LG&E v. Argentina (n 77) para 194
110 Jeswald W. Salacuse, The Law of Investment Treaties (2nd edn, Oxford University Press 2015) Chapter 12.9 111 Kriebaum (n 26) 457-458
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awards have looked at the intentions of a governments to expropriate.112 In cases such as Aguas
del Aconquija and Vivendi v. Argentina and Sempra Energy v. Argentina,113 the effect of the measure was considered as the critical factor while the state’s intention was not determinative, mainly due to the impossibility of proving it. Contrarily, in other cases the legislative intent of the state was given a considerable weight when distinguishing between measures that pursue a legitimate public purpose and those that are designed to carry out a taking of property without compensation. In CCL v Republic of Kazakhstan the expropriatory claim was considered unfounded as the claimant did not show (and the Tribunal did not discover) any evidence or indication that such motivation lied behind any of the Government's actions.114 In a more extreme position, Katharina A. Byrne considers that the consequences of a measure should play a subordinate role to the intention, which will not only would reduce the scope of expropriation claims and make unnecessary for arbitrators to become embroiled in making social policy decisions, but also will allow a variation among nations in the manner in which they carry out social and economic policies.115
Even though the idea behind the standard is to restrict expropriation to the states’ behavior where knowingly deprives the investor, with the introduction of the word “intent” CETA re-opens the debate of its relevance. As it is now explicitly mentioned, for the drafters the states’ intent must have some considerable relevance in the assessment of indirect expropriation. However, as generally it is not discernible, some problems may arise in its consideration. Would be the host state’s intent a conditio sine qua non of indirect expropriation? Which party will bear the burden of proof? Depositing said burden on the investor will probably constitute in the in many cases a probatio diabolica. A way to overcome such situation would be the creation of (rebuttable) presumptions, which have been recognized by the SGS v Philippines Tribunal.116
Regarding the second paragraph, CETA adopted the fact-based inquiry developed by the US Supreme Court, perpetuating a criterion from the year 1978 grafted into international treaties intending to reflect CIL. Such approach undermines the consensual nature of International Law, as principles developed by a particular legal system should not be
112 Hoffmann (n 11) 161-162
113 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (n 3) at para 7.5.20;
Sempra Energy v. Argentina (n 77) at para 282
114 CCL v Republic of Kazakhstan, Final Award, Stockholm Chamber of Commerce, Final Award, 1 January 2004,
123, 173
115 Katharina A. Byrne, 'Regulatory Expropriation and State Intent' (2001) 38 Canadian Yearbook of International
Law 89, 118-119
116 Lone Wandahl Mouyal, International Investment Law and the Right to Regulate - A human rights perspective
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extrapolated to a global basis in such a direct manner. Despite some minor adjustments have been introduced under CETA, still no guidance was incorporated regarding the application or weight that should be assigned to each factor.
4.2.3) Third paragraph
Lastly, we should analyze the third paragraph of Annex 8-A. It indicates: “For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.”
Despite some differences, while the aforementioned wording is very similar to the one employed by IIAs which follow the US Model BIT and Canada Model BIT,117 in the case of European States’ BITs, it cannot be found, except in scarce exceptions.118
Even though it has been suggested that the most effective interpretation is to read the paragraph as rebuttable presumption,119 we should recall that not only
presumptions are dependent upon a superior authority with power to define them, but also, they play a major role in establishing a burden of proof or in shifting it from one party the another.120
If the paragraph entails a presumption, it was not established clearly. Moreover, as IIL is governed by the onus probandi actori incumbit rule, the paragraph does not seem to be an exception, as the burden appears to be fully with the investor (claimant).
As a first difference, we can see the inclusion of the phrase “For greater certainty” which cannot be found in existing BITs. Such phrase has been usually used to merely make explicit that which would have been implicit in its absence.121 Therefore, from a substantial point of view it introduction has made no innovation nor brought any clarity to the issue of indirect expropriation and regulatory measures.
The paragraph sub examine states an exception, a non-discriminatory measure cannot be qualified as expropriatory when its designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment. This case constitutes an exception to indirect expropriation, as it presupposes that the measure causes a
117 E.g. US-Uruguay BIT (2005); US-Rwanda BIT (2008); Canada-Mongolia BIT (2016); Canada- Hong Kong
BIT (2016); Canada-Peru BIT (2007)
118 E.g. UK-Colombia BIT (2014) 119 Ortino (n 66) 362
120 Karl-Heinz Böckstiegel, ‘Presenting Evidence in International Arbitration’ (2001) 16 ICSID Review 1, 3 121 Kenneth J. Vandevelde, U.S. International Investment Agreements (1st edn, Oxford University Press Inc 2009)
