Matters related to the environment are increasingly coming under scrutiny by international courts and tribunals.
Examples: Australian law mandating the plain packaging of cigarettes, which is currently being challenged under both international investment and international trade law.
Article analyzes the extent of the regulatory space afforded to states and World Trade Organization (“WTO”) members in the international investment and international trade regimes.
Comparing the jurisprudence of investment tribunals regarding regulatory expropriations and the jurisprudence of the WTO dispute settlement organs in cases concerning human, animal or plant life or health, as well as cases concerning technical barriers to trade.
International trade and investment law can offer valuable insights for one another, despite the differences between the two regimes.
While international trade law has been more skilled at incorporating health or environmental concerns as a countervailing force to the prevailing paradigm of trade liberalization, changes in international investment law may soon close the gap.
International investment law is currently undergoing a discourse similar to the one that has shaped international trade law since the inception of the WTO in 1995.
Thus international investment law may be shaped in a similar manner, as there are growing signs that the regulatory space afforded in international trade and investment law are converging, despite the fact that the international trade law discussion was carried out in a different context, through a different set of institutions, and within different epistemic communities.
The regulation of domestic economic activities was traditionally a matter of a state’s regulatory power, subject mostly to domestic legal and political constraints.
International legal obligations existed to the extent that a state entered into binding international obligations to regulate or abstain from regulating with respect to particular goods or services. States entered into trade obligations that required them to lower tariff levels in exchange for reciprocal benefits that at least part of its constituency regarded as important. Similarly, states concluded treaties that provided foreign investors the same treatment accorded to their own nationals. In short, countries had almost unlimited “regulatory space.”
They possessed a large degree of regulatory autonomy, especially when making decisions that implicated noneconomic values such as human health, human safety, the environment or social mobility. The situation changed with the adoption of the General Agreement on Tariffs and Trade (“GATT”) after WWII. The GATT provided not only for mechanisms to reduce tariff barriers and non-tariff barriers and contained a number of justificatory provisions that seemed to afford the contracting parties a great deal of regulatory space. The relative importance of non-tariff barriers compared to tariff barriers became evident through a growing number of complaints by other GATT parties against domestic regulations, arguing that such regulations were in contravention of the GATT.
The establishment of the World Trade Organization (“WTO”) in 1995 accelerated this trend.
A considerable number of disputes now involve complaints about regulations in the areas of health and the environment.
The increase in bilateral and multilateral investment agreements over the last decades, guaranteeing rights to foreign investors, has led to complaints not only against alleged expropriations, but also against domestic regulations where no property was actually seized.
These so-called regulatory expropriations are akin to the “regulatory takings” under domestic law in many countries eg environmental regulations.
It contrasts the developments in the areas of trade and investment law, although questions concerning regulatory autonomy are not limited
some countries reconsidering their commitment to investor-state dispute settlement.
The WTO has undergone similar debates after its inception. Thus, another aim of the article is to show how the WTO’s dispute settlement organs have been able to avoid continued debates about the propriety of their jurisprudence.
The article analyzes the degree to which the regulatory space afforded to governments converges between these two regimes, mainly through analyzing disputes concerning health and the environment.
These disputes have been highly contentious in the trade arena and have taken on great importance in recent investment disputes. An illustrative example of this convergence is the dispute concerning Australia’s legislation concerning the plain packaging of cigarettes. PM v Australia
The sale of cigarettes in Australia has been under tight restrictions for years. One of the latest regulations of the sale of cigarettes, which went into effect on December 1, 2012, is the Tobacco Plain Packaging Act.
This law imposes strict packaging requirements regarding the shape, size, and type of packaging and cartons to be used for tobacco products, and even goes as far as specifying that the packaging of all tobacco products must be a particular color—“drab dark brown”— with a matte finish.
The law also prohibits the use of trademarks or other distinguishing characteristics and stipulates that the “brand, business or company name, or variant name (if any), for the tobacco products” may only appear in a prescribed place and form, alongside any other marks permitted by the Act’s regulation.9
The Australian government claimed that enacting the legislation was in the interest of improving public health.
It argued that despite the high level of regulation in place prior to the enactment of the plain packaging law, more than 15,000 Australians die of tobacco-related diseases each year, costing AUS$31.5 billion per annum.11 A challenge against the law’s constitutionality was denied by the High Court of Australia in 2012.
The law is currently undergoing scrutiny before two international dispute settlement systems: the WTO and an international investment tribunal (IIT).
WTO🡪a number of WTO members initiated the action against Australia.
IIT🡪 Philip Morris Asia Limited brought a suit against Australia under the Bilateral Investment Treaty (“BIT”) between Hong Kong and Australia. Under both processes, the claimants argue, inter alia, that the Australian government’s measure infringes trademark rights.
In addition, the WTO disputes also allege violations of the Agreement on Technical Barriers to Trade (“TBT Agreement”) and the GATT 1994 (which prov?).
Regardless of the venue, the cases invariably involve a discussion of the ability of governments to regulate in the field of human health.19
These cases essentially deal with the amount of regulatory space that governments have under both international trade and investment law.
the question of how much regulatory space governments should be afforded under each international regime takes on crucial importance.20 One could argue that states should foresee situations in which a subsequent treaty that allows for less regulatory space supersedes an earlier treaty. However, this assumes that the restrictions on regulatory space concern the same subject matter, which is not necessarily the case.
a different regulatory regime with respect to the same subject matter, due to the two regimes having been designed to be complementary, but it turns out that they are not, or – even more problematically – in situations in which the rules of one regime undermine the application of the other regime.21
Finally, the potential of the two dispute settlement systems to decide that countries have different degrees of regulatory autonomy may undermine the ability of governments to predictably regulate public health and environmental issues.
This is especially the case when the disputes involve a challenge to the same governmental measure in two systems that do not regulate the same subject matter.
🡪 Having at least similar regulatory space increases efficiency and reduces costs that governments and the private sector otherwise incur.
🡪The importance of this matter cannot be overstated with respect to the plain packaging legislation.
A number of countries plan to institute similar regulations to those of Australia and are awaiting the outcome of these disputes.24 Even more importantly, the number of cases in which the regulatory fabric of countries is being challenged can be expected to increase in the near future. After briefly discussing the common origins of international trade and investment law (2),
2. INTERNATIONAL TRADE LAW AND INTERNATIONAL INVESTMENT LAW: TWINS SEPARATED AT BIRTH
the interest in international investment law has intensified, shown not only by the increasing number of international investment agreements (“IIAs”), but also by the increasing number of cases that are being adjudicated.25
This rising interest is similar to the one observed in international trade law, following the creation of the WTO in 1995.
The two fields are closely interrelated and many modern preferential trade agreements contain not only rules with respect to trade, but also rules pertaining to investment.26
Examples can be found in the ongoing negotiations about the Trans-Pacific Partnership Agreement (TPP)27 as well as the Transatlantic Trade and Investment Partnership (TTIP).28 Both areas fall under the purview of public international law,29 as the underlying treaties are entered into by states.
In both instances, states play a central role in the enforcement of adjudicatory decisions.30 Similarly, both entities have seen a remarkable increase in interest: in the case of international trade law, this became evident in the aftermath of the creation of the WTO in 1995; in the case of international investment law, it has grown through a sharp increase in the number of IIAs as well as through an increase in dispute settlement based on these agreements.31 There are nevertheless a considerable number of differences.32
🡪World trade law is based on a set of mostly multilateral treaties (with a small number of so-called plurilateral treaties) that prohibit discriminatory treatment regarding foreign and domestic like goods and services (so-called “national treatment obligation”), and also with respect to distinguishing between like products or services that come from different countries (so-called “mostfavored nation obligation”).
In the context of the Uruguay Round, a number of additional agreements have been developed with respect to intellectual property, subsidies, dumping, agriculture, sanitary and phytosanitary measures, and technical barriers to trade. This system is buttressed by a dispute settlement mechanism – the Dispute Settlement Understanding (“DSU”) – often referred to as one of the most effective international enforcement mechanisms.
States in WTO disputes oftentimes serve as proxies for private actors on both sides of any dispute. International investment law is characterized by states guaranteeing the protection of foreign investors through rules pertaining to fair and equitable treatment, non-discrimination based on the origin of the investor and compensation in the case of expropriations in exchange for foreign direct investments. 33
Contrary to WTO law, there is no need for investors to convince their home countries to bring a case, but rather international investment treaties allow for the investor to bring a claim against the host state, without having to exhaust local remedies, before ad hoc arbitral tribunals.
Procedurally, such panels more closely resemble commercial arbitration tribunals compared to their WTO counterparts. Investment law is undergoing a marked shift – one that is commensurate with a shift in the type of case that is being arbitrated.
While early cases mostly concerned expropriation measures, or questioned discrete sanctions, investors have started to challenge the regulatory fabric of their host states.
IIL is becoming increasingly scrutinized for being potentially unfair to developing countries or, as some have argued, is perceived as a threat to domestic governance.
IIL ‘is about protection, not liberalization, and about individual rights, not state-to-state exchanges of market opportunities.”38 The development towards challenging administrative decisions and domestic regulatory fabric, and the ability to do so internationally raises new questions about
(1) what role private actors should play,
(2) what vehicle is appropriate to challenge domestic regulatory measures,
(3) to what extent international adjudicatory bodies should have decision-making authority over domestic policy preferences such as the protection of human health, the environment, or human rights.
international trade and investment law both raise similar questions with respect to the amount of regulatory space that is accorded to domestic decision-makers.
This article provides an analysis of the regulatory space that states and WTO members are provided when appearing before international investment law panels and WTO dispute settlement organs.
On one hand, an abundance of regulatory space may undermine the efficacy of international investment law or international trade law.
On the other hand, limiting the regulatory autonomy of governments too drastically allows international adjudicators to nullify domestic decisions without any form of democratic control.
3. THE WTO AND INVESTMENT FRAMEWORKS COMPARED
3.1. Introducing the Legal Frameworks
Both areas are increasingly regarded as two sides of the same coin.
3.1.1. The Investment Law Framework
Capital exporting countries, as proxies for capital providers, were however interested in obtaining assurances that investment protection was to be put on a more secure footing.
This started with the first BIT. This was due to a push towards revising the international economic system by developing countries.
The real change these treaties brought about came through allowing private parties – on the basis of BITs – to have recourse against discriminatory treatment, the prohibition of export-related import quotas,
The ability to challenge state measures on these grounds was seen as the creation of a “dramatic extension of arbitral jurisdiction in the international realm.”
ICSID remains the focal point for investor-state arbitration.
The vast majority of investment treaties are bilateral – with regional agreements such as the North American Free Trade Agreement (NAFTA)
Unlike the WTO’s Appellate Body (“AB”), investment arbitration panels are not guided by the jurisprudence of a higher adjudicatory level.
three stages in the development of international investment law: the system’s infancy, its adolescence, and its approaching adulthood.
The first stage is characterized by power imbalances between developing states and developed states, the latter of which exported its capital to the former and could oftentimes dictate the terms of the agreement.
the large majority of such relationships were characterized by strong power imbalances and the belief that only through such treaties could developing countries attract much-needed capital.
Investors were given protections from expropriations or other measures that could inhibit their investments.
Procedurally, the broadly worded obligations were accompanied by mechanisms that allowed investors to bring disputes before arbitral tribunals, which were given wide discretion to decide over such disputes.
The community of arbitrators being small and to a large extent coming from commercial arbitration was another characteristic of this phase. This led to the mindset that was prevalent in commercial arbitration (of regarding the two parties as being on equal footing) without due regard for the different roles that states and investors actually play.
Finally, the treaties were structurally skewed towards investor rights and rarely contained solid provisions that would safeguard the interests of states in defending regulatory changes.
The protection of pursuing domestic policy goals was hardly mentioned in these treaties.
the capital-exporting country was generally not concerned with such issues in the capital-importing country.
The greater concern with investor rights becomes evident when looking at some of the early literature that emphasizes the parallel between investment law and human rights law.
It is important to emphasize in this context that – barring certain rights – such rights are not absolute, but in most instances are subject to limitations.
Investments from developing countries have increased, causing existing developed states to lose the immunity from suit they once factually enjoyed.
Some states (such as Bolivia, Ecuador and Venezuela) have taken the rather aggressive step of withdrawing from the ICSID dispute settlement system entirely, while other countries (such as South Africa and Australia) have decided to no longer include investor-state arbitration provisions
in their IIAs.
One major reason for this shift is the diminishing divide between capital-importing and capital-exporting countries. Whereas certain investment treaty provisions had almost exclusively benefitted developed countries in the past, they may now work to the detriment of these countries.
What was previously a rather close-knit circle of specialized lawyers with a common background in commercial arbitration has diversified to include participants from various academic and professional backgrounds.
The approaching “adulthood” era is about to set in, and it abounds with uncertainty surrounding its nature.
this maturation can bring about a further increase in the number of amicus curiae briefs or third-party interventions
3.1.2. The WTO Framework
The conclusion of the Dispute Settlement Understanding (DSU) brought about several important changes to the dispute settlement mechanism, as it had existed under the GATT.
Article 3.3 DSU points to the dual nature of WTO law, stating that “[t]he prompt settlement of [disputes] is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members.”
The compulsory nature of dispute settlement under Article 23.1 DSU serves another function – the provision of “security and predictability to the multilateral trading system.” While dispute settlement can take on a variety of forms such as mediation and arbitrations, the default option today is adjudication by panels and the AB subsequent to mandatory consultations.
Once adjudication commences, the dispute comes before a panel, and appeals of panel decisions are brought before the AB. The panel or AB report is adopted by the DSB quasi-automatically through a reverse or “negative” consensus – the report is adopted unless a party to the dispute notifies the DSB of its decision to appeal (for panel reports), or the DSB decides by consensus not to adopt it.
This is one of the essential differences between the DSU dispute settlement mechanism required to adopt a report.
AB 🡪 While disputing WTO members can choose the members of the panels, AB members are appointed by the DSB to serve four-year terms, with a possible one-time reappointment.
The AB consists of seven members and appeals are heard by three-member divisions selected on a rotational basis, which takes into account the principles of random selection, unpredictability and opportunity for all members to serve regardless of their origin.
The importance of the fixed term appointments for AB members should not be underestimated.
It provides a level of impartiality that allows for the AB to make decisions without needing to be concerned about reappointment to a subsequent dispute.
Decisions related to an appeal are made exclusively by the three-member division to which it has been assigned.
However, to “ensure consistency and coherence in its case law and to draw on the individual and collective expertise of all seven Members, the division responsible for deciding an appeal exchanges views with the other Members on issues raised by the appeal” prior to rendering a final decision.
The purpose of this discussion is in line again with the general goal of dispute settlement in the WTO: to achieve “security and predictability in the multilateral trading system.”
Another change brought about by the existence of the AB is the precedential value of AB decisions with respect to subsequent panel decisions.
While the decisions of panels and the AB are technically binding only on the parties to a dispute,they do have precedential value.
It “create legitimate expectations among WTO members.”
🡪provid[e] interpretative guidance for future panels.
It then expressed its deep concern “about the Panel’s decision to depart from well established Appellate Body jurisprudence clarifying the interpretation of the same legal issues” and went on to state that “[t]he Panel’s approach has serious implications for the proper functioning of the WTO dispute settlement system.”
“the hierarchical structure contemplated in the DSU,” provides for appellate review by the AB of panel decisions, without assigning some sort of precedential value to AB decisions.
The AB may have issued an implied threat towards the panels when it poignantly suggested that the panel’s decision not to follow the AB jurisprudence constituted a “[failure] to discharge its duties under Article 11 DSU.”
This form of de facto precedent has paved the way for the elucidation of overarching principles in the jurisprudence of the AB, which is now followed by the panels.
The justifications under Article XX GATT serve as an exemption, within limitations.
The AB took issue with the interpretation of Article XX(g) GATT, especially with respect to the term “related to” and adopted a more lenient standard.
After the Gasoline decision, an agreement was made over the order in which this provision is to be analyzed.
The AB made it clear that the analysis is to be conducted in two steps:
in a first step, panels and the AB examine a WTO member’s measure under one of the paragraphs (a) – (j),
followed by an analysis of whether the measure’s application is in accordance with the chapeau of Article XX GATT.
This clarified the structure of the provision in that the chapeau (introductory para) exists in order to curb abuse by a WTO member invoking one of the justifications in Article XX GATT.
Understood in this sense, the statement by the AB that the “General Agreement is not to be read in clinical isolation from public international law” makes clear that WTO law is embedded in a wider system of public international law.
A similar chain of events was evident in the US – Shrimp case, in which the panel similarly exhibited an approach that – while paying lip service to the “legitimacy of environmental policies” – saw such policies as “unilateral measures which, by their nature, could put the multilateral trading system at risk.”
The AB, similar to its previous decision in US – Gasoline, made clear what it saw as the purpose of Article XX GATT: allowing for a justification of measures that may otherwise contravene provisions such as Articles I, III or XI GATT, while making sure that such measures are not taken as an “abuse or misuse of a given kind of exception.”
WTO members making domestic decisions over matters such as the protection of health or the environment deserve a certain amount of regulatory space.
Such decisions are not permitted to be made without limitations, however.
3.2. Trade Regulation and Regulatory Expropriations: Trade and Investment Law
wo fields have, distinctly different goals:
international investment law has developed as a protective mechanism concerning the investments that individuals or corporations make in a different jurisdiction.
International trade law, has developed by reducing tariffs and other barriers to trade by curbing protectionism.
In the case of international investment law, regulatory space functions as a justification for an intrusion on investment guarantees, especially in cases where an investment may conflict with what the host state considers a desirable public policy.
In the case of international trade law, the justification is similarly based upon a public policy decision against a commitment towards other WTO members to reduce barriers to trade and avoid protectionism.
regulatory space WTO members have under the WTO umbrella: the Agreement on Sanitary and Phytosanitary Measures (“SPS Agreement”)141 and the Agreement on Technical Barriers to Trade (“TBT Agreement”).
3.2.1. Investment Law: Regulatory Expropriations
investors expect stability with respect to administrative decision-making.
3.2.1.1. The Changing Landscape of Investment Regulation
Recent IIAs have incorporated provisions that explicitly recognize the importance of non-economic factors, such as human, animal plant life or health or the environment.
This hints at the recognition of the need to find a balance between the individual rights of investors on the one hand and the regulatory needs of societies on the other.
structurally analogous to Article XX GATT and Article XIV of the General Agreement on Trade in Services (“GATS”).
3.2.1.1.1. Non-Discrimination
A measure will not pass muster if it is de jure or de facto discriminatory. As is true in other areas of international economic law, discriminatory treatment in international investment law is a cause for host state liability, unless justified in narrow circumstances. The rationale is simple: without a level playing field between domestic and foreign operators, foreign competitors are likely to be at a disadvantage due to the lack of political connectedness and inability to exert as much political pressure as their domestic counterparts.
3.2.1.1.2. Extent of Interference with Property Rights
Often described as the most contentious, this element concerns the extent to which a governmental measure must impact investor rights to constitute an expropriation.
Unlike direct expropriations, where property is taken away by governmental measures, this type of situation is characterized by significantly reducing the commercial value of the property for the investors.
At one extreme, which the Tecmed tribunal pointed out, are situations in which the deprivation is total and extends over time.
In such situations regulatory measures could be an “indirect de facto expropriation if they are irreversible and permanent and if the assets or rights subject to such measure[s] have been affected in such a way that . . . any form or exploitation thereof . . . has disappeared.”
Other situations are not as clear-cut.
Oftentimes, profit is not completely withheld, but is reduced.
3.2.1.1.3. Purpose of Governmental Measure
“governments must be free to act in the broader public interest through protection of the environment, new or modified tax regimes, the granting or withdrawal of government subsidies, reductions or increases in tariff levels, imposition of zoning restrictions, and the like.”
This decision was clearly informed by the idea that not every governmental regulation, so long as it is reasonable, is compensable. A measure’s purpose is often, though not always, closely tied to the requirement that a measure be non-discriminatory.
There have been cases in which the purpose of the measure may be laudable or genuinely based on the protection of important societal values, yet such a measure fails because of a protectionist purpose.
In many ways, this is reminiscent of the situation in the WTO.
3.2.1.1.4. Proportionality
International investment law had for the longest time functioned without making explicit reference to the principle of proportionality.
Tecmed case.
State action must not only serve a legitimate goal, but must also be suitable (i.e., the purported goal must be furthered by the measure), necessary (i.e., that no less intrusive measure exists which achieves the same objective) and, finally, proportional in a strict sense (i.e., the measure must appropriately balance the competing interests of public policy and private rights.
🡪forces governments to be more precise in their own assessments and reasoning, lest they be subject to judicial review.
It thus reflects an approach that recognizes that rights are rarely absolute and allows for a “more or less,” rather than an “all or nothing” approach.
The Tecmed decision has laid down a considerable amount of this analytical structure.
The case concerned a claim made by an investor that the Mexican government failed to renew a temporary operating license for a landfill for hazardous waste and, therefore, breached its obligations contained in a BIT.
The government’s argument for refusing to renew the license consisted of lack of reliability and operated against certain regulatory requirements.
However, the refusal to grant the license only came about after considerable protest by the local population, which prompted the company to relocate to a different site.
In the meantime, the investor wanted to maintain the landfill for five months until the new facility had been created.
- Today, it remains one of the only decisions that attempts to distinguish an appropriate use of governmental regulatory power from compensable expropriation.
It inquired into “whether such actions or measures are proportional to the public interest presumably protected thereby and to the protection legally granted to investments, taking into account that the significance of such impact has a key role upon deciding the proportionality.” Moreover, the tribunal recognized that “[t]here must be a reasonable relationship of proportionality between the charge or weight imposed to the foreign investor and the aim sought to be realized by any expropriatory measure.”
The S.D. Myers decision is important not only for recognizing that there is a duty to enact measures that are least restrictive, but also for referencing WTO law in this regard.
to balance the “degree of the measure’s interference with the right of ownership” against “the power of the State to adopt its policies,” while being mindful of the “context within which a measure was adopted and the host State’s purpose.”202
3.2.1.1.5. Legitimate Investment-Backed Expectations
This was an issue in the Methanex case, which dealt with a California ban on a fuel additive (MTBE). The tribunal stated that compensation required a showing of “specific commitments” that “had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.”
the tribunal found that investors must have been aware of the potential for changing regulatory circumstances, especially with regard to health or environmental issues.
Taken together, these points were summarized that “[g]overnments, in their exercise of regulatory power, frequently change their laws and regulations in response to changing economic circumstances or changing political, economic or social considerations. Those changes may well make certain activities less profitable or even uneconomic to continue.”
“sole effect” doctrine, which focused almost exclusively on the economic impact of a measure with respect to the investor. The Saluka decision is instructive in this regard:
an impugned measure is adopted and applied is critical to the determination of its validity.213
Realizing that legitimate investment-backed expectations deserve protection while simultaneously recognizing that regulatory frameworks are subject to change over time (due to scientific discoveries,
3.2.1.2. Summary
The Feldman tribunal has carefully summarized the problem that regulatory action poses:
The Tribunal notes that the ways in which governmental authorities may force a company out of business, or significantly reduce the economic benefits of its business, are many. In the past, confiscatory taxation, denial of access to infrastructure or necessary raw materials, imposition of unreasonable regulatory regimes, among others, have been considered to be expropriatory actions.
At the same time, governments must be free to act in the broader public interest through protection of the environment, new or modified tax regimes, the granting or withdrawal of government subsidies, reductions or increases in tariff levels, imposition of zoning restrictions and the like. Reasonable governmental regulation of this type cannot be achieved if any business that is adversely affected may seek compensation, and it is safe to say that customary international law recognizes this.
Indeed, the debate in WTO law has concentrated on procedural vision of the extent to which WTO dispute settlement organs can make inquiries into domestic regulatory decisions. Rather than adding to the existing general literature, this section focuses on how the WTO’s dispute settlement organs and scholars have debated the question of how much regulatory space WTO members should be accorded.
This has been particularly at issue in cases concerning the SPS and TBT Agreements.
The AB in the Hormones case remarked on the delicate balance that must be struck between permitting WTO members the necessary regulatory space and ascertaining that domestic measures are not taken for protectionist purposes.
This statement embodies the realization that while adjudication by panels and the AB may evaluate to what extent a member is in compliance with its obligations and thus fulfill its role of ensuring the “security and predictability [of] the multilateral trading system,”226 the determination of what the applicable standard of review consists of is also a political statement over the distribution of power between different levels in a multi-level governance system such as the WTO.
3.2.2.1. SPS Agreement
The SPS Agreement allows members to take measures to protect human, animal, and plant life or health from sanitary and phytosanitary risks. It does so by employing a science-based approach.
For example, WTO members wishing to block the importation of goods on the basis of a risk involving human, animal, or plant life or health need to produce scientific evidence justifying the measure.
Article 2.2 SPS Agreement specifically demands that measures be “based on scientific principles” and “not maintained without sufficient scientific evidence.”
Combined with the rules contained in Articles 3.1 and 3.2 SPS Agreement, which encourage members to follow international standards in developing internal measures and which create a rebuttable presumption of WTO consistency of an internal measure, the SPS Agreement elevates international standards in the subject matters covered by the SPS Agreement to a quasi requirement.
Under Article 3.3 SPS Agreement, deviations from such international standards in order to meet a higher level of protection must be justified with scientific evidence.
This involves procedural and substantive requirements, such as carrying out a new risk assessment, which compels members to “take into account available scientific evidence.”
Only in circumstances in which “scientific evidence is insufficient” are WTO members allowed to deviate from international standards, provided that these members “seek to obtain the additional information necessary for a more objective assessment of risk,” which has to be carried out “within a reasonable period of time.”
What follows is a more detailed analysis of the SPS Agreement provisions as they relate to the degree to which WTO members enjoy regulatory space in their decision-making process concerning SPS matters.
WTO members, while having the right to take WTO measures under Article 2.1 SPS Agreement, must adhere to a number of requirements in order to be in compliance with the SPS Agreement.
The basic obligation contained in Article 2.2 SPS Agreement lays out that any measure is limited in scope “only to the extent necessary” and must be based on “scientific principles and . . . not maintained without sufficient scientific evidence.”233
This basic obligation is buttressed by Article 5.1 SPS Agreement, which mandates that a risk assessment be carried out when putting in place measures that deviate from international standards.
Under the AB’s jurisprudence, the measure that a WTO member puts in place must show “the existence of a sufficient or adequate relationship” with the scientific evidence that the WTO member has acquired.
235 Sufficiency requires verifiable data to support the conclusions and a “certain level of objectivity.”236
While this may indicate that a higher evidentiary threshold is necessary for more trade-restrictive measures, the AB has consistently pointed out that WTO members also enjoy latitude – i.e. regulatory space – when it remarked “responsible, representative governments commonly act from perspectives of prudence and precaution where risks of irreversible, e.g. life-terminating, damage to human health are concerned.”237
International standards play a large role in determining whether a WTO member is in compliance with WTO law.238 In order to achieve a higher level of harmonization, the SPS Agreement is designed so that WTO members are in quasi-automatic compliance if their measures are “based on the relevant international standards, guidelines or recommendations.” 239 Promulgated outside the ambit of the WTO itself, 240 the SPS Agreement allows WTO members to put in place measures that result in a higher level of protection than that provided by international standards.
In such instances however, WTO members have to provide scientific justification for deviating from an international standard. The contention in most situations concerning an SPS measure is, therefore, if and to what extent a WTO member has scientific evidence to back up the need for a higher level of protection than that afforded by an international standard. A WTO member is then obligated to carry out a risk assessment under Articles 5.1–5.3 SPS Agreement.
In this context, the AB’s jurisprudence has recognized that the factors that WTO members may consider are not limited to those that Article 5.2 SPS Agreement mentions, and that a member’s measures do not take place in a laboratory, but rather in “human societies as they actually exist, in other words, the actual potential for adverse effects on human health in the real world where people live and work and die.”
‘This leaves open the question—thus far unanswered by the AB or the panels— whether non-scientific factors (e.g. cultural preferences or subjective positions such as different societal risk perceptions) can be taken into consideration.242 While some authors claim that there is only a “low empirical barrier” to be crossed, 243 the AB’s jurisprudence in EC—Hormones indicates a considerable amount of caution and maintains a central role for scientific evidence. The EC—Hormones case makes clear that states have regulatory space only after substantial empirical barriers have been overcome. It is, however, also an indication that the AB – unlike the panels deciding SPS cases244 – has recognized that there is a complex interplay of factors that goes beyond the laboratory setting. The AB has taken a similarly permissive approach to a number of other questions. Regarding what level of risk
WTO members have to accept, it recognized the accountability that domestic decision-makers have when deciding whether to institute an SPS measure. It thus allowed WTO members to use minority viewpoints in the scientific community and required only an inquiry to “determine whether that risk assessment is supported by coherent reasoning and respectable scientific evidence[,] . . .” provided that it meets “standards of the relevant scientific community.”245 Similarly, the AB held that when implementing a measure subsequent to carrying out a risk assessment, a measure must have an “objective relationship” to the risk assessment and must have been “sufficiently warrant[ed].”
The panel had earlier required a much stricter nexus, interpreting the meaning of the term “based on” as having to conform much more strictly to the results of the risk assessment.247 Finally, the SPS Agreement is cognizant of the fact that there is a considerable amount of uncertainty in virtually all scientific inquiry.
Article 5.7 SPS Agreement was found to reflect the precautionary principle and operates as a “qualified exemption” to other provisions of the SPS Agreement. 248 Article 5.7 SPS Agreement requires a showing of the following: (1) insufficient scientific evidence; (2) a measure must be adopted “on the basis of available pertinent information;” (3) a WTO member invoking this provision must seek additional scientific information; and (4) the measure is subject to review within a “reasonable period of time.”249
The reflection of the precautionary principle indicates a certain amount of regulatory space, provided that these preconditions are met. Again, however, the AB made clear that the regulatory space given to WTO members is not unlimited. The provision may only be invoked in situations in which “the body of available scientific evidence does not allow, in quantitative or qualitative terms, the performance of an adequate assessment of risks.”250 At the same time, the AB rebuked attempts by the panel level251 to mandate a “critical mass” standard “that would call into question the fundamental precepts of previous knowledge and evidence so as to make relevant, previously sufficient, evidence now insufficient.”252
In order to rely on a minority viewpoint, the AB found it sufficient that a member provide a “qualified and respected scientific view that puts into question the relationship between the relevant scientific evidence and the conclusions in relation to risk, thereby not permitting the performance of a sufficiently objective assessment of risk on the basis of the existing scientific evidence.”253 In these areas, the AB’s findings in general comport with a more lenient approach than that accorded to WTO members by the panels.254
3.2.2.2. TBT Agreement
The situation with respect to the TBT Agreement has recently been clarified to a certain extent through a number of WTO decisions.255 These disputes arose in quick succession after a relative dearth of cases concerning the TBT Agreement.
Although none of these cases has dealt with the issue of regulatory space in greater detail, a close reading of the cases reveals a general approach towards how the issue of regulatory space is to be dealt with under the TBT Agreement. The findings in these cases involved a balancing between the dual goals of liberalizing trade and preserving a member’s right to pursue legitimate policy objectives.256 The starting point for this analysis is Article 2.2 TBT Agreement, which includes helpful elements to identify the amount of regulatory space that WTO members have:
Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create.257
The provision entails elements that can be pursued in trying to identify the regulatory space that WTO members have: including that a technical regulation (1) pursue a legitimate objective, (2) is not to be prepared, adopted or applied so as erect unnecessary obstacles to trade, (3) is no more trade restrictive than necessary, and (4) Members take account of the risk that non-fulfillment may create.
Similar to Article 5.2 SPS Agreement, 258 Article 2.2 TBT Agreement contains a list of legitimate objectives that may be pursued, such as national security, the prevention of deceptive practices, the protection of human health or safety, animal or plant life or health, or the environment.259 The wording indicates clearly that these objectives are not exhaustive, and that WTO members may invoke other objectives.260 The AB and the panel have reinforced this interpretation on numerous occasions. For example, in the Sardines case, the European Community made the argument that a Codex Alimentarius standard was an ineffective or inappropriate means for the fulfillment of legitimate objectives because it failed to meet three objectives: consumer protection, market transparency, and fair competition.261
In U.S. – Tuna II, the AB interpreted Article 2.2 TBT Agreement as containing a nonexhaustive list of legitimate objectives, which were intended as “examples” to “provide a reference point for which other objectives may be considered to be legitimate in the sense of Article 2.2.”262 The AB also noted that “objectives recognized in the provisions of other covered agreements may provide guidance for, or may inform, the analysis of what might be considered a legitimate objective under Article 2.2.”
263 In Clove Cigarettes, Indonesia unsuccessfully challenged the legitimacy of the United States’ stated objective, i.e. the reduction of youth smoking.264 In the COOL case, the United States declared that the objective of the provision was to provide consumer information about the origins of certain meat products, thereby preventing confusion on the side of the consumer.265 Procedurally, the AB reinforced the point made by the panel, namely that it is incumbent on the complaining party to prove that a measure did not pursue a legitimate objective.266 Substantively, the AB left no doubt that it is a legitimate objective for a WTO member to convey to consumers product information for the purposes of preventing deceptive practices and protecting consumers.267
The AB in COOL reiterated its position from U.S. – Tuna II, pointing not only to the text of Article 2.2 TBT Agreement itself,268 but also to other provisions, such as the preamble of the TBT Agreement, and Articles XX(b), XX(d), and IX GATT.269
The preamble recognizes that a member shall not be prevented from taking measures necessary to achieve its legitimate objectives “at the levels it considers appropriate.”270 Canada argued in COOL that, when a WTO member pursues an objective not specifically listed in Article 2.2 TBT Agreement, such an objective has to conform to the “significant elements of commonality of the explicitly listed objectives” found in that provision.271 The AB disagreed, noting that even though Canada had not elaborated on alleged elements of commonality that would “illuminate the relevant type of objective” and thus serve to delineate the class of legitimate objectives that fall within Article 2.2 TBT Agreement, it would be “difficult to discern such commonality amongst the disparate listed
objectives that are, moreover, ‘expressed at a high level of generality.’”272 The AB concluded that “any relevant ‘commonality’ would have to relate to the nature and content of those objectives themselves,” and rejected Canada’s position that such commonality can only be found in limited situations where Article 2.2 TBT Agreement objectives are explicitly listed in other covered agreements.273 The range of legitimate objectives is therefore rather wide, but subject to the limitation stated in Article 2.2 TBT Agreement, namely that any risk assessment must be carried out by taking into account the “available scientific and technical information, related processing technology or intended end-uses of products.”274 Article 2.2 TBT Agreement contains two elements that relate to a necessity test, specifically the prohibition on “creating unnecessary obstacles to international trade” and the requirement that technical regulations be “no more trade-restrictive than necessary to fulfill a legitimate objective.” This means that a technical regulation that is more trade restrictive than necessary is by default an “unnecessary obstacle to international trade.”275
According to the AB in U.S. – Tuna II, the following factors are relevant in determining whether a technical regulation is “more trade-restrictive than necessary”: (i) the degree of contribution made by the measure to the legitimate objective at issue, (ii) the trade-restrictiveness of the measure, and (iii) the nature of the risks at issue and the gravity of consequences that would arise from non-fulfillment of the objective(s) pursued through the measure.276 At the heart of the analysis is a comparison between the challenged measure and an alternative measure that is less trade restrictive, but still capable of achieving the government’s legitimate objective. The importance of properly identifying the objective pursued by the measure becomes evident when taking into account that the AB has developed a jurisprudence in which the weighing and balancing that takes place is highly dependent on the competing values in any situation.277 In the Clove Cigarettes case, the U.S. proffered human health and safety, and specifically the reduction of youth smoking, as its objective.278 The panel found, referring to the AB’s jurisprudence in Brazil – Retreaded Tyres, that there was “a genuine relationship of ends and means” between the objective pursued and the measure at issue.279 In U.S. – Tuna II, the objectives of the measure at hand were the protection of animals and the prevention of deceptive practices that could mislead consumers.280 Importantly, the AB came to the conclusion that the alternative measure proposed by Mexico – catching Tuna by “setting on dolphins” – would not “achieve the United States’ objectives to an equivalent degree as the measure at issue.”281 Rather, the alternative measure would contribute to a higher mortality rate among dolphins and lead to other adverse health effects in dolphin populations.282 In the final case, U.S. – COOL, the AB made findings with respect to all three of the elements of the analysis set forth in U.S. – Tuna II. Applying the three-factor U.S. – Tuna II analysis, the AB found that: (i) while the COOL measures made some contribution to the objective pursued – conveying to consumers information as to the origin of meat products and thereby preventing deceptive practices – it was unable to ascertain the degree to which the measure contributed to the objective; 283 (ii) the measures were considerably traderestrictive because of the limiting effect of the measure on the competitive opportunities for imported livestock compared to the situation before the COOL measures took effect;284 and (iii) the consequences that may arise from the non-fulfillment of the objective would not be particularly grave, as the unwillingness of consumers to pay for the measure was not widespread.285
3.2.2.3. Summary
The analysis undertaken by the AB in the TBT cases discussed above is similar to the AB jurisprudence in the areas of the GATT and the SPS Agreement. In the case of the GATT, there has been a move away from a “least-restrictive means” test to one that is “less-restrictive means” based, supplemented by a proportionality test that weighs and balances a series of factors, including: the contribution made by the compliance measure to the enforcement of the law or regulation at issue; the importance of the common interests or values protected by that law or regulation; and the accompanying impact of the law or regulation on imports or exports.
The “weighing and balancing” was further explained by the AB in EC – Asbestos, when the AB posited that, the more important the common values pursued, the more easily the WTO dispute settlement organs would accept the necessity of a Member’s measure “designed to achieve those ends.”287 The effect of this jurisprudence is that the AB provided WTO members with regulatory space when taking internal measures. The AB’s jurisprudence with respect to the SPS Agreement, as shown above, has similarly provided WTO members such regulatory space when taking SPS measures. However, this discretion is not unfettered. The AB’s TBT Agreement jurisprudence shows a similar trajectory, though with a somewhat more cautious stance.
It does so on the basis of its general approach with respect to the TBT Agreement which has been to balance the “desire to avoid creating unnecessary obstacles to international trade” and “the recognition of Members’ right to regulate.” Given the AB’s tendency to provide more regulatory space when vital or highly important values are at stake, it is not surprising that this is especially true in cases where human health or life is concerned, whereas the same may not be true in instances when the values are considered to be less important.
3.3. Regulatory Space for Domestic Decision-Makers: Converging Trends in Trade and Investment Law?
The analysis of the ways in which international trade and investment law deal with the question of how much regulatory space is to be accorded to states or WTO members has shown a trend towards convergence of the two fields.
One important difference, further elaborated below, is the institutional setting of each field.
While the WTO has an integrated dispute settlement mechanism for arbitrating trade law issues, international investment law is far more disparate in both its substantive and procedural rules.
the existence of a WTO appellate mechanism has led to the development of a jurisprudence, which, while not always uniform, has attained a much greater degree of coherence than is the case in international investment law!!!!!!!!!!!!!!!!
The existence of a dispute settlement mechanism and a relatively consistent line of cases elicit a clearer jurisprudence with respect to the amount of regulatory space that is being accorded to WTO members. Properly understood, regulatory space is not an occasion for states or WTO members to decide in an unfettered manner whether to either treat investors in contravention of the existing investment agreements or to prohibit a product from entering a WTO member’s territory. Rather, it is the recognition that, under particular circumstances a state or a WTO member has discretion – within limits – to deny the (full) enjoyment of an investment or the importation of a particular product, provided that a justification can be provided.
Like other dispute settlement organs, the AB has attempted to delineate this regulatory space between two competing goals:
permitting WTO members to react to situations in which particular values may be at risk, while trying at the same time to curb potential abuse.
This is the case with respect to the GATT after the AB’s decision in Korea – Beef in which the AB openly introduced not only a different conception of necessity (from least-restrictive means testing to less-restrictive means testing), but also proportionality testing through a process it described as “weighing and balancing.”
The Korea – Beef approach enables the AB to more adequately react to situations or new developments as they arise and contextualize its response depending on the different elements that factor into the “weighing and balancing.”
– contribute to a wider regulatory space for WTO members. Similarly, the jurisprudence of the AB has shown – with different scope, as described above – that WTO members enjoy a considerable amount of regulatory space under both the SPS Agreement and the TBT Agreement.
International investment law is currently witnessing a number of discourses that may have profound implications for the field.
These discourses include the varying schools of thought that conceive of international investment law as public law,292 as well as other voices that argue over the legitimacy of international investment law.
Some of those discourses revolve around the question of to what extent the field should undergo development similar to that of international trade law.
Tecmed is are indications that the field is moving towards greater acceptance of values that compete with the protection of investors’ rights, and is becoming increasingly deferential to states’ regulatory judgments.
On the other hand, different tribunals have arrived at different conclusions when interpreting the same language and the same general situation.
There is value – though it is not an end in itself – in creating an adjudicatory system that provides something similar to what the WTO’s DSU calls the “security and predictability [of] the multilateral trading system.”
Participants in an adjudicatory system would be better equipped to anticipate the decisions of a tribunal if decisions were made in a more consistent fashion. Moreover, by being open and clear about how they adjudicate the degree of regulatory space states have, tribunals also contribute to dissolving the legitimacy problem–real or perceived–that international investment law is facing.
Regardless of what position one takes in the debate concerning the desirability of such a convergence, 303 there is undeniably a profound shift in the international investment law discourse towards the incorporation of additional values when evaluating investment claims and thus a closer approximation of the jurisprudence of other international tribunals, notably that of the WTO.304
4. UNDERSTANDING THE DIFFERENCES
This section will explain some of the reasons for the differences between the fields of international trade and investment law. It focuses on textual, contextual, and institutional explanations for these differences, as well as the divergent epistemic communities the fields engender. This is certainly not a complete list, but rather an attempt to explain some of the salient differences that account for why international trade and investment law have taken different approaches to deciding the amount of regulatory space.
4.1. Text and Context
The most significant difference between the two fields is that, while WTO law has positively codified justifications for governments wishing to protect interests that are not fundamentally economic, investment treaties have historically not included similar provisions. As outlined above, justificatory clauses have only recently become more common in IIAs.
Therefore, the starting point for the debate on providing regulatory space in the two fields is different. Since the inception of the WTO, jurisprudence has developed that takes the justificatory clauses in treaty provisions seriously, the most well-known of which is Article XX GATT. For example, the AB stated in U.S. – Shrimp that:
[t]he task of interpreting and applying the chapeau is, hence, essentially the delicate one of locating and marking out a line of equilibrium between the right of a Member to invoke an exception under Article XX and the rights of the other Members under varying substantive provisions (e.g., Article XI) of the GATT 1994, so that neither of the competing rights will cancel out the other and thereby distort and nullify or impair the balance of rights and obligations constructed by the Members themselves in that Agreement. The location of the line of equilibrium, as expressed in the chapeau, is not fixed and unchanging; the line moves as the kind and the shape of the measures at stake vary and as the facts making up specific cases differ.305
The AB has made similar findings regarding the relationship between members’ rights306 and the justificatory provisions such as those found in Article XX GATT, the SPS Agreement, and the TBT Agreement.307 It may have been easier in the past to forego the recognition of regulatory space in international investment law. Some of the reasons include the absence of similar justificatory language in international investment law agreements, combined with more discrete cases of direct expropriation. Thus, José Alvarez and Tegan Brink criticize the ICSID tribunal’s Continental decision for its adoption of the AB’s Article XX GATT jurisprudence without sufficiently explaining the rationale for doing so. 308 Their argument that the two-tiered analysis under Article XX GATT – first determining which of the justifications in (a) through (j) applies, and then deciding whether a measure runs afoul of the chapeau – influences the way in which the term “necessary” is interpreted, is valid.309 This is the reason why this article does not focus on interpreting the term “necessary” on its own, but rather uses the concept of regulatory space. Cases involving the distribution of essential services such as water and cases involving health or environment or other public concerns have been brought before international investment tribunals.310 In these instances – and especially in cases where such policy decisions follow a genuine democratic process – it will be increasingly difficult to avoid according states at least some regulatory space, even in the absence of the specific justificatory language that is usually contained in more modern BITs.311 The change that model BITs are undergoing concerning treaty language, and the growing variety in the types of challenges that are being brought before international investment tribunals, coincides with an increase in the number of countries from which investments are made. The addition of justificatory clauses in model BITs takes place at roughly the same time when investment streams are changing from being predominated by unidirectional investments from developed to developing countries to investment streams that are increasingly multi-directional. Countries that were previously almost exclusively capital-exporting now find themselves being brought before tribunals as respondents in a system that they had previously had a great interest in maintaining. An additional element that is worth pointing out consists of the
functional differences between international trade and investment law. The former has traditionally been portrayed as pitting states against a less powerful investor, whereas the latter involves disputes between two WTO members.312 Moreover, the purpose of WTO law can correctly be summarized as having “twin objectives of trade liberalization (positive) and the prevention of protectionism (negative).”313 Traditionally, one of the goals of investment law has been the protection of investors against powerful states – a goal that is not likely to vanish any time soon. The following statement demonstrates this view: “At [the heart of international investment law] lies the right of a private actor to engage in an arbitral litigation against a (foreign) government over governmental conduct affecting the investor.”314 But it could be argued that, in certain cases, limiting the goal of international investment law solely to the protection of investors is a very narrow view of the raison d’être of this field of law. Rather – in parallel to how WTO law has been described – international investment law cases involving public policy matters not only have the positive objectives of providing protection for investors and the promotion of foreign direct investment, but also the negative goal of preventing that very protection from allowing responsible governments to make public policy choices. This ties in significantly with the different remedies available in both systems. WTO law is designed to bring an offending member “back into compliance” – in other words, its remedies are entirely prospective and any countermeasures can be executed against such a member only after the Dispute Settlement Body made a finding of non-implementation. This is a function of the diplomatic origin of the GATT / WTO regime and of the desire to incentivize members to reposition themselves so that the trade system can function at the most efficient state that WTO members agreed upon. By contrast, international investment law’s remedies are – by and large – retrospective and are designed to monetarily reprimand a state for the wrongs it has inflicted upon an investor. There can be no doubt that these differences are important and that
they play a crucial role in evaluating the different regimes.315 At the same time, it is at least worth inquiring whether certain regulatory expropriation cases – such as when an investor challenges the regulatory fabric of the host state by challenging general and abstract provisions concerning, for example, health or environmental measures – should be analyzed differently from traditional expropriation cases. It is at least questionable whether, in a case concerning the health impact of harmful substances, the traditional investment law remedy is truly retrospective. Given that the findings of investment tribunals may deter other states from adopting the same measures, investment law can be prospective under certain conditions.316
4.2. Institutional Reasons
Another explanation for the differences between investment law and trade law with respect to the amount of regulatory space lies in the different institutional designs within each field. As discussed above, the adjudicatory systems in the two fields are remarkably different. Two specific and interrelated features of investment law, which distinguish it from trade law, are worth pointing out – the lack of the existence of an appellate mechanism, and the lack of a system of precedent. The most salient difference, which critics of the move towards more regulatory space in international investment law are quick to point out, is the ad hoc nature of international investment law adjudication. 317 Unlike WTO law, which has an appellate mechanism, international investment law is a radically decentralized system with “no authoritative voice” to resolve differences.318 This is unsurprising, given the very nature of international investment law with its thousands of individual bilateral and multilateral instruments with differing venues,
compared to the very existence of the WTO as a unifying institution.319 Indeed, this difference leads to divergences in a great number of cases. There have been debates over the years concerning the introduction of a “WTO-style” appellate procedure in investment law. Even though the decisions rendered by the WTO AB are not binding on the panels or even on the AB itself, its findings are nonetheless regularly followed and regarded as having precedential value.320 The lack of an appellate mechanism – suggested in various forms321 – in the realm of international investment law has been continuously debated over the last decade.322 Most of the criticism has been directed at the potential of prolonging disputes and endangering the finality of an arbitration award, both of which are valued in the current system as important characteristics.323 Given the highly fragmented nature of international investment law, it is unclear how such an appellate system could actually be implemented in practice. Parties would have to agree to submit to an additional layer of scrutiny, and treaties would presumably have to be amended.324 It is beyond the scope of this paper to further analyze the reasons why these proposals are unlikely to succeed. Nevertheless, it is worth pointing out the advantages of such a system. The contribution of the AB as an institutional factor towards building a coherent jurisprudence in WTO law can hardly be overstated. While other changes in the procedure put in place during the Uruguay Round were important, such as the adoption of panel or AB decisions by the Dispute Settlement Body through the process of reverse consensus, the addition of a permanent appellate mechanism could be described as a crucial element in the success of the WTO’s adjudicatory mechanism.325 A permanently staffed appellate mechanism could deflect criticism with respect to the independence and impartiality of the tribunals that is leveled against the current system of investment arbitration. 326 As mentioned before, coherence is not a virtue in and of itself,327 but it has served other areas in international law rather well. There is also no doubt that the introduction of an appellate mechanism comes at a cost,328 but one that other systems have found worth paying. Given that the likelihood of an institutional reform is at this time rather small, another mechanism that may bring about greater coherence is the use of previous decisions as a form of quasiprecedent.329
4.3. Different Epistemic Communities
Continental decision may serve as an example where one of the arbitrators may have had decisive influence in the inclusion of Article XX GATT jurisprudence in the panel’s decision.349 Stephan Schill has aptly summarized the difference between private commercial and public international lawyers, stating:
[They] often have different perspectives on and different philosophies about the role of law, the State, and the function of dispute resolution. Also, their audiences and conceptual approaches are often different. Whereas public international lawyers embed international investment law firmly in general international law and approach the topic against that background, commercial arbitral lawyers focus on dispute settlement and see investment treaty arbitration as a subset of international (commercial) arbitration.350
The traditional paradigm of international investment law posits that decisions in one case should not have larger policy implications.
example is the challenge against Australia’s measure concerning the plain packaging of cigarettes and the decision by Germany to place restrictions on the use of coal-fired power plants.351 In such cases it is hard to argue that states – especially when a measure has been passed with considerable democratic safeguards – should not be accorded regulatory space.352 Marrying public law maxims with a dispute settlement community that has, to a significant degree, evolved 6from commercial arbitration creates friction and brings about challenges and disputes over the supremacy of interpretative primacy.353 One of these frictions lies in the adjustment of expertise that adjudicators will have to bring with them.
commercial arbitrators have an insufficient grounding in public international law and appreciation that they are no longer refereeing a match that concerns only the disputing parties
while some public international lawyers have an inadequate grasp on economics, commercial law, and how to conduct proceedings.
It should also be recognized that international investment law is not alone in facing such a change or clash of legal culture(s), but that other fields – including international trade law – have undergone similar challenges.
5. CONCLUSION
This article shows that international trade and investment law, despite their differences, are two closely related fields; and, in many ways, constitute two sides of the same coin.
Both areas have undergone, or are currently undergoing, considerable changes with respect to the degree to which they permit states and WTO members regulatory space in determining domestic public policy.
To show the development of the slow convergence, and how the two systems deal with allowing states to make policy decisions in such fields as the environment or human health, this analysis focused on
(1) regulatory expropriations in the case of international investment law, and
(2) the SPS Agreement and the TBT Agreement in the case of WTO law.
The debate over regulatory space is particularly vigorous in international investment law, where the traditional paradigm of the protection of investors has had to contend with views that favor balancing public policy matters against the need for investors to be protected against governmental intrusion.
As Mary Footer rightly points out, “[t]here are . . . limits on the extent to which WTO jurisprudence can be brought into investment arbitration,” and referencing other fields of international law should certainly be more than “an opportunistic cross-referencing exercise.”
reasons why international investment law has been less welcoming in recognizing domestic policy decisions are the differences
between the epistemic communities investment and trade law.
Recognizing the reasons why important differences between the two fields remain may help shape the discourse over the convergence between international trade and investment law.
This article does not promote the view that substantive obligations in international investment law should be rewritten.
Instead, it argues that some of the jurisprudence developed in international trade law as well as the discourse concomitant with these changes can serve as a form of blueprint for a future system of international investment law that takes these concerns seriously.
The current system, having focused on individual rights, can evolve into one that takes contrasting societal goals seriously, while anchoring its collective interpretative exercise in the texts of existing investment agreements.
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