Simon has noted on the blog before the increasing interest in including an Article XX-type exception in investment agreements, as a way of helping to resolve some of the regulatory issues raised by, eg, the FET and expropriation obligations. Indeed, many of you will have seen that Article XX is incorporated by reference in the draft text of the Canada-EU Trade Agreement (CETA), and is proposed to be incorporated into the TTIP in some form: http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf
The proposed text reads (in part – there is more to it): "For the purposes of Chapters X through Y and Chapter Z (National Treatment and Market Access for Goods, Rules of Origin, Origin Procedures, Customs and Trade Facilitation), Section 2 (Establishment of Investments) and Section 3 (Non-discrimination of Investment), GATT 1994 Article XX is incorporated into and made part of this Agreement."
There is a similar text in relation to GATS XIV (a), (b), and (c). Overall, this seems to me to be a step in the right direction as regards investment obligations. But I have some concerns about the precise way in which Article XX is being incorporated – and more generally about the decision to incorporate Article XX by reference rather than introducing an improved version of it, given the chance to do so. On a first reading of this clause, and knowing what we know about the how the clause has been interpreted in the WTO context, there seem to me to be at least the following issues to be thought about:
(1) One of the most common criticisms of Article XX is that it contains a closed list of exceptions. Although it is not easy to think of a regulatory objectives which is unequivocally not covered by this list, the possibility remains open. The solution adopted in TBT Art 2.2 was simply to reference ‘legitimate objectives’, and to provide a non-exhaustive list of such objectives. Why not adopt the same approach here? (An alternative would be to include consumer protection in the list of objectives, as that is the one which is often advanced as an example of what is incompletely included.) The incorporation of only some paragraphs of GATS XIV also is unexplained in the consultation document, and is prima facie problematic: the TBT solution would solve this as well. As my colleague Jan Kleinheisterkamp reminds me, this would in fact bring the situation into closer alignment with EU law in any case.
(2) The paragraph above simply incorporates Article XX by reference, including the chapeau. But there is wording in the chapeau which just doesn’t translate well to the investment context, or which creates other ambiguities, eg:
(a) ‘disguised restriction on international trade’: how is this to be read in the investment context? Why would we incorporate it? The reference to international trade is confusing
(b) ‘discrimination between countries where the same conditions prevail’: again, how is this to be read? Is discrimination between investors from different countries the same as discrimination between countries? And why do the conditions in the home countries matter for the purposes of discrimination in the investment context?
(c) ‘Nothing in this Agreement’: there is an obvious ambiguity in this, though easily solved through interpretation. But the more subtle issue is to make sure that the same issue does not arise in the TTIP context as has arisen in the WTO context: namely ambiguity about the applicability of this exception to obligations found in documents/declarations/agreements which are part of a broader set of TTIP outcomes, but not the TTIP itself. Eg, if third countries later accede to the TTIP (as some have suggested), would this exception cover additional obligations contained in their protocols of accession? Many of us will know this as a live and ongoing issue in the WTO context, and there seems to be an opportunity right now to clarify the issue with respect to TTIP, rather than making the same mistake (?) again
(d) ‘nothing in this agreement shall prevent the adoption or enforcement of measures …’: a crucial issue is whether a monetary award, given by an investment tribunal, does in fact prevent the adoption of enforcement of regulatory measures. This is not at all clear, and if interpreted narrowly, the exception would have very little practical effect.
(3) As to its scope of application, perhaps I am misreading the consultation document, but it seems strangely narrow in terms of its scope of application. The incorporated Article XX seems only to be an exception to Establishment and Non-discrimination obligations in relation to investment. Does it cover FET and expropriation? If not, this would seem to be a problem.
(4) Another criticism of Article XX which will be familiar to all WTO students is that it has a degree of internal inconsistency. Most obviously, paragraphs (a), (b), (d) use the language of ‘necessary to’, while other paragraphs (eg, (g)), use the language ‘relating to’. It has been clear in the WTO context that this difference in language has proved important, but it has never been entirely clear why one standard would apply to one set of regulatory measures, and a stricter standard apply to others? Why not remove this inconsistency here?
(5) If we are incorporating Article XX, is there a case for incorporating Article XXI (national security) as well? If not, why not?
(6) Two other general issues are worth thinking about – which are less to do with drafting, and more to do with strategy. First, as others have pointed out, no-one should be under the impression that we have any certainty that investment tribunals will interpret the incorporated Article XX in the same way as the WTO AB has interpreted GATT Art XX. There is the possibility – high likelihood, even – of divergent interpretations over time. Second, the drafters should be careful about setting up an adverse inference in the context of interpreting other investment agreements which do not have this exception. What I mean is that arbitrators might interpret investment treaties without such clauses in a way which reduces regulatory space, precisely on the basis that they do not include an exception of this kind, and that this must have been a deliberate decision of the drafters. This could have the unintended effect of reversing some of the jurisprudential developments of the last decade or so, which have relaxed somewhat the interpretation of a number of investment obligations. To guard against this, one possibility may be to include a sentence in the TTIP making clear the belief and intention that the inclusion of this exception in the TTIP simply makes clearer and more explicit the regulatory balance which is implicit in other, older-style investment agreements.