American Journal of Law & Medicine

Exploring the Confines of International Investment and Domestic Health Protections - Is a General Exceptions Clause a Forced Perspective?

I. INTRODUCTION

The international law of foreign investment is one of the fastest-growing areas of international economic law with several bilateral investment treaties or preferential trade agreements, including an investment chapter, negotiated every year. At the same time, new cases are being lodged at an exponential rate. (1) Thanks to the remarkable effectiveness of its law, the investment regime has become a center of attraction not only for the settlement of disputes strictly related to investment but also problems between governments concerning matters including those of non-economic dimensions. The nature of the international arbitral process is entirely different from a national court process; it is an international tribunal governed by an international convention, mandated to inquire into the conduct and responsibility, of a State in light of its treaty and customary international law obligations. (2) This could result in significant State liability and could impact regulatory regimes and policy goals, attracting considerable criticism. (3)

The potential use of investment arbitration to challenge tobacco regulations has become a source of controversy in Trans-Pacific Partnership (TPP) negotiations (4) while regulation of investor-State dispute settlement (ISDS) was a key issue in the recent Korea-U.S. (Korus) Free Trade Agreement (FTA). (5) While investor-state dispute settlement is advocated by the U.S. Business Coalition for the TPP, there is also much resistance. At present, Australia has rejected ISDS in the TPP, and it remains to be seen how far this view will influence the other TPP parties. (6) It is too early to say if Australia's change in policy has affected other countries.

It is more likely that multiplication of investment disputes combined with some questionable awards has gradually led some governments to question the benefit of arbitration. (7) As stressed by Professor Lo, a "tension" is emerging between the goal of attracting investment (and hence to protect foreign investors), and seems to prevail over non-economic concerns, and other public policy aims, which may be impacted in the process. (8) There has been some progress made on redesigning investment institutions to take into account issues of public policy nature. (9) The increases in transparency and accountability to date, however, have come about on an ad hoc basis and are mainly restricted to practice within the North American Free Trade Agreement (NAFTA). While changes to arbitral rules, particularly in ICSID, suggest a positive trend, they are still fairly limited.

As a consequence, a new trend is emerging in treaty practice consisting of including a "general exceptions" clause, which governments hope will provide greater regulatory flexibility and serve pursuing public interest objectives such as tobacco restrictions. Interestingly, investment treaties are importing such a clause from World Trade Organization (WTO) law. The text of GATT Article XX GATT recognizes that:

   Subject to the requirement that such measures are not applied in a
   manner which would constitute a means of arbitrary or unjustifiable
   discrimination between countries where the same conditions prevail,
   or a disguised restriction on international trade, nothing in this
   Agreement [the GATT] shall be construed to prevent the adoption or
   enforcement by any contracting party of measures: ...

   (b) necessary to protect human, animal or plant life or health; ...

   (g) relating to the conservation of exhaustible natural resources
   if such measures are made effective in conjunction with
   restrictions on domestic production or consumption.... (10)

In the current analysis, I will not discuss the fact that there is a risk of fragmentation in interpreting such clauses, as it goes beyond the scope of this Article. (11) This Article focuses the analysis on the ramifications of the recent investment treaty practice, including "general exceptions" in investment treaties in light of increasing attention paid by governments to tobacco controls. This Article fundamentally tries to answer whether the "general exceptions" clause found in investment treaties can be an efficient tool for governments to develop national health policies. It is an important question, both at policy and theoretical levels, as investment treaties grant significant rights to foreign investors, such as tobacco companies, while many governments are willing to develop tobacco control measures which would echo those enforced by Uruguay and Australia, two countries subject to investors' claims.

II. TOBACCO AS A FOREIGN INVESTMENT: EXPLORING THE INTERNATIONAL LAW APPLICABLE

Tobacco companies have had marketing activities in many countries throughout the world helped by the movement of trade liberalization (WTO and Preferential Trade Agreements (PTAs)) and liberalization of investment rules (investment treaties), which have provided them with the opportunity to expand their operations. (12) As any investors, tobacco companies can use international investment agreements (IIAs) in order to access foreign markets and protect their investments which may take various forms, such as capital invested in the host countries, factories, shops, the final product. (13) The investment protection clauses found in investment-enabling institutions are vague and open-ended. (14) As a result, tribunals are left with a large scope to interpret these norms. Clarifications or exceptions flesh out some of the detail of vaguely worded provisions in investment agreements and make it more clear how public policy regulations should be treated under them. (15) I first review the international standards in favor of foreign investors (II.A) and then provide a mapping of the "general exceptions" clause in recent treaty practice (II.B).

A. THE INTERNATIONAL STANDARDS IN FAVOR OF FOREIGN INVESTORS

The international regime for foreign investment has become increasingly dependent upon international treaties, which constitute a patchwork of agreements and provisions that address the regulation of investment. (16) This "treatification" (17) shows the significant recalibration of international investment law over the last years. According to the United Nations Conference on Trade and Development (UNCTAD) studies and statistics, the network of international investment agreements (IIAs) has been expanding considerably over the last decade, amounting by the beginning of 2013 to more than 2800 Bilateral Investment Treaties (BITs), whereas fewer than 400 BITs existed by the end of the 1990s. (18)

In terms of substance, investment treaty practice shows that

   nearly all international investment agreements cover the following
   nine topics: (1) definitions and scope of application; (2)
   investment promotion and conditions for the entry of foreign
   investments and investors; (3) general standards for the treatment
   of foreign investors and investments; (4) monetary transfers; (5)
   expropriation and dispossession; (6) operational and other
   conditions; (7) losses from armed conflict or internal disorder;
   (8) treaty exceptions, modifications, and terminations; and (9)
   dispute settlement. (19)

These diverse provisions are important to reassure foreign investors that they will be able to reap the benefits of their investment, (20) and no trend denies such an approach, although evidence on the extent to which investment decisions are influenced by investment treaties is mixed. (21)

B. MAPPING THE USE OF EXCEPTIONS IN INVESTMENT TREATIES RECENT PRACTICE

Clarifications or exceptions flesh out some of the detail of vaguely worded provisions in investment agreements and clarifies how public policy regulations should be treated under them. These types of provisions are mainly found with relation to two clauses: performance requirements and expropriation. The Canadian Model Foreign Investment Promotion and Protection Agreement (FIPA)'s section (2) in Article 7 on performance requirements states, "A measure that requires an investment to use a technology to meet generally applicable health, safety or environmental requirements shall not be construed to be inconsistent with paragraph l(f)." (22) American agreements tend to adopt a more detailed GATT Article XX-like exception. (23)

In order to provide a mapping of the "general exceptions" clause in recent investment rule-making, I have used the BITsel Index (24) to locate and identify these investment treaties that either incorporate WTO "general exceptions" clause or merely take inspiration from the same WTO provision. This mapping would not be complete without a review of some specific clauses aiming at protecting a specific interest, such as health protection.

1. Instruments Incorporating WTO "General Exceptions" Clause

The incorporation means that the investment treaty simply uses the wording of WTO law and even makes explicit reference to this model. Some IIAs incorporate Article XX, GATT or Article XIV, General Agreement on Trade in Services (CATS), mutatis mutandis. Some others incorporate both, which shows a very inconsistent treaty practice.

Example No. 1: The New Zealand-Malaysia Free Trade Agreement was signed in Kuala Lumpur on October 26, 2009. (25) Chapter 10 covers investment and chapter 17 covers exceptions. Chapter 17 and its Article 17.1 are about General Exceptions. The Agreement states:

1. For the purposes of Chapters 2 through 10, (Trade in Goods, Rules of Origin, Customs Procedures and Cooperation, Trade Remedies, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Trade in Services, Movement of Natural Persons, and Investment) of this Agreement, Article XX of GATT 1994 and its interpretive notes and Article XIV of GATS (including its footnotes) are incorporated into and made part of this Agreement, mutatis mutandis.

2. The Parties understand that the measures referred to in Article XX(b) of GATT 1994 and Article XIV(b) of GATS include measures necessary to protect human, animal or plant life or health, and that Article XX(g) of GATT 1994 applies to measures relating to the conservation of living and non-living exhaustible natural resources.

3. For the purposes of Chapters 2 through 10, (Trade in Goods, Rules of Origin, Customs Procedures and Cooperation, Trade Remedies, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Trade in Services, Movement of Natural Persons, and Investment) of this Agreement, subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade in goods and services or investment, nothing in this Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary to protect national works or specific sites of historical or archaeological value, or to support creative arts of national value. (26)

Example No. 2: The New Zealand-China FTA was signed on April 7, 2008 in Beijing, after negotiations that spanned fifteen rounds over three years. (27) It entered into force on October 1, 2008, after ratification by the New Zealand Parliament. (28) It regulates foreign investment in Chapter 11 and addresses the exceptions in chapter 17. It is in the latter chapter that Article 200.1 provides "general exceptions" to incorporating WTO law and covering investment matters. Article 200 reads as follows:

1. For the purposes of this Agreement, Article XX of GATT 1994 and its interpretative notes and Article XIV of GATS (including its footnotes) are incorporated into and made part of this Agreement, mutatis mutandis.

2. The Parties understand that the measures referred to in Article XX(b) of GATT 1994 and Article XIV(b) of GATS, as incorporated into this Agreement, can include environmental measures necessary to protect human, animal or plant life or health, and Article XX(g) of GATT 1994, as incorporated into this Agreement, applies to measures relating to the conservation of living and non-living exhaustible natural resources, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade in goods or services or investment.

3. For the purposes of this Agreement, subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade in goods or services or investment, nothing in this Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary to protect national works or specific sites of historical or archaeological value, or to support creative arts of national value.

4. Nothing in this Agreement shall prevent the Parties from taking any necessary measures to restrict the illicit import of cultural property from the other Party under the framework of the United Nations Educational, Scientific and Cultural Organization ("UNESCO") Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, done at Paris on 14 November 1970. (29)

Example No. 3: In the FTA concluded by the European Free Trade Association (EFTA) (30) and Hong Kong, China, a similar option has been chosen. (31) Chapter 4 addresses investment matters and its Article 4.9 on "Exceptions" states: "The rights and obligations of the Parties in respect of general exceptions and security exceptions shall be governed by Article XIV and paragraph 1 of Article XIV bis of the GATS, which are hereby incorporated into and made part of this Chapter, mutatis mutandis." (32)

Example No. 4: The Free Trade Agreement (FTA) signed between Peru and Singapore entered into force in August 2009. (33) Chapter 10 addresses investments and Chapter 18 addresses exceptions:

   For purposes of Chapter 10 (Investment), Chapter 11 (Cross-Border
   Trade in Services), Chapter 12 (Temporary Entry for Business
   Persons) and Chapter 13 (Electronic Commerce) 18-1, Article XIV of
   the GATS (including its footnotes) is incorporated into and made
   part of this Agreement, mutatis mutandis. The Parties understand
   that the measures referred to in Article XIV(b) of the GATS include
   environmental measures necessary to protect human, animal, or plant
   life or health. (34)

It is important to emphasize the fact that some other "general exceptions" clauses found in PTAs, although incorporating the WTO law and covering large portions of the PTA, do not cover the investment chapter. It is the case of the U.S.-Singapore FTA. (35) Such PTAs are logically excluded from the analysis.

2. Inspiration from WTO "General Exceptions" Clause

Some other investment treaties do not cite the WTO model but employ a wording so close that the inspiration is obvious.

Example No. 1: The Singapore-Jordan Bilateral Investment Treaty (BIT) was concluded on April 29, 2004 and came into force on August 22, 2005. (36) On the same day, respectively, the Singapore-Jordan Free Trade Agreement was also concluded and entered into force. (37) Article 18 states that

[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 the Parties where like conditions prevail, or a disguised restriction on investments in the territory of a Party by investors of the other Party, nothing in this Treaty shall be construed to prevent the adoption or enforcement by a Party of measures:

(a) necessary to protect public morals or to maintain public order;

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

(c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Treaty including those relating to:

(i) the prevention of deceptive and fraudulent practices or to deal with the effects of fraud on a default of contract;

(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 records and accounts;

(iii) safety;

(d) imposed for the protection of national treasures of artistic, historic or archaeological value;

(e) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption. …

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