Over on twitter, my friend Colin Brown and I were discussing exceptions clauses in international investment agreements. When I suggested that it was important to have such exceptions apply to the fair and equitable treatment obligation, he asked, "but why would one need an exception from failure to provide due process or protection from manifest arbitrariness?" 140 character tweets are insufficient for this topic, so I'm taking the discussion over here. (I've said all this before at greater length in various other places.)
I'll begin my answer by saying that, in my view, it is extremely problematic to have fair and equitable treatment provisions (or other broadly worded provisions of this kind) in international investment agreements. When such provisions are included, there is a conceivable, non-frivolous claim against a wide range of non-discriminatory government actions. By including such provisions, governments open themselves up to challenges by foreign investors against many of their policies. Of course, that doesn't mean all of these claims will be successful. But there will be a fair number of claims, and some of them will be successful. For the EU, I would think one of the big concerns here would be the various food regulations that are not based on science, but that's just one small aspect of the vast number of government polices that might have a hard time meeting this standard. (The main constraint on complaints against EU measures will probably not be the substance of these standards, but rather locating foreign investors who are affected and willing to bring cases. But I'm sure there are law firms who are willing to spend time looking.)
Now, as many of you are aware, I'm skeptical of a lot government actions, so I'm not here to defend government regulation. I'm just pointing out that by taking on these obligations, governments are giving foreign investors an additional way to challenge regulations. Foreign investors and others can already take advantage of similar domestic procedures. When international investment agreements are available, foreign investors get an extra legal option as well. For those of you in government who want to be able to govern, this seems like it should be an important consideration.
As to the corresponding domestic procedures, governments probably get annoyed with domestic courts striking down their actions, but at least there you have a system of checks and balances between the different branches of government. With investment courts, by contrast, the judicial side is not very well checked. As a result, it is more of a problem to have investment courts applying these broad legal obligations than to have domestic courts do the same thing. (The NT and MFN obligations in investment agreements, by contrast, are pretty narrow, and don't interfere with many government policies. Thus, there is far less impact on domestic governing when international courts apply non-discrimination requirements. And if interpreted in a way that takes into account the purpose of the measures, I'm not sure you really need exceptions for these obligations.)
Nevertheless, for now, governments keep including FET-type provisions in international investment agreements, which takes us to Colin's point. Why should there be an exception to an obligation that governments not act in a "manifestly arbitrary" manner? Why not make governments provide compensation to foreign investors in every case where they act this way?
Basically, I'm just trying to limit the damage here. By including these obligations, governments have opened the floodgates for claims. If I can't convince them not to include the obligations in the first place, maybe I can give them a better chance of defending themselves against the many claims coming their way. In theory, tribunals could take into account public policies as part of the consideration of manifest arbitrariness. But I'm not sure this is always being done, and perhaps making it explicit that such purposes should be considered, through a well-designed, flexible exception, would help the situation. (Here's an example of some wording that I think would work in this regard: "Nothing in this Agreement shall prevent the adoption or enforcement of measures related to public health, provided the measures do not discriminate based on nationality.")
Of course, just to make sure this discussion does not distract us from the larger point, let me just add that nobody has provided convincing evidence that there is a general problem with bad treatment of foreign investors/investments that needs be addressed with international agreements. If anything, the big problem with foreign investment is all the subsidies governments throw at it. An international agreement to stop giving subsidies to investors seems like a good idea.