Cross-cutting Issues in Investment Law – Asia Perspective on Sustainable Environment and Public Health  Chingwen Hsueh, Assistant Professor, NCTU law School

Key Issues Who should be more protected, foreign investor, or the host state? How do the BITs adopt the policy needs of host states? What are the policy needs of Asian host states? and Could the BIAs or the investment chapters meet their needs?

Who should be protected More?

Who should be more protected? Scenario 1: Foreign investor A plained to build a chemical factory in state A. Central government have proved the project, power ever the local government rejected to issue permission to operated due to environmental concerns, which was found to an excuse for undue pressure.

Who should be more protected? Scenario 2: State A plained to impose restrictions on use of trade mark on the tobacco packages. The tobacco companies objected this policy and doubted whether the restrictions could reduce the tobacco consumption.

Evil Multinational Enterprise ? Innocent Host State? Evil Multinational Enterprise ?

How do the BIAs or the investment chapters in FTAs adopt the policy needs?

How do the BIAs or the investment chapters in FTAs adopt the policy needs? Host state’s public policy in light of investor’s rights Option I: taking the policy needs in the interpretation of host states obligations, so that there won’t be any breach. Option II: as exceptions or defences for an breach of obligation, such as non-lowering of standards, non-conforming measures

Option I: taking the policy needs in the interpretation of host states obligations MFN and National Treatment “Like Circumstances”：competitive relationship？ Justification for different treatment In German Model BIT, measures stands for public policy shall not be deemed as discriminatory treatment public policy concerns as ”rational grounds” Whether the host state has discriminatory intent

Option I: taking the policy needs in the interpretation of host states obligations B. Indirect Expropriation & Right to Regulate The violation of indirect expropriation requires “de facto deprivation of properties” It is necessary to differentiate indirect expropriation from governmental regulatory measure Narrowing the scope of indirect expropriation Recognizing the concept of “right to regulate” or “regulatory power”

Option I: taking the policy needs in the interpretation of host states obligations narrow the scope of indirect expropriate 「Considering the purpose of the measure」？ No, Sole Effect Doctrine: solely consider the degree of economic effect (excluding the possibility of the incorporation of the need of public policy) Yes, Taking “the feature of governmental measure” into consideration: examine affected investors’ interest and the purpose of the disputed measure

Option I: taking the policy needs in the interpretation of host states obligations Recognising the concept of “right to regulate” or “regulatory power” State has an inherent right/power to regulate domestic matters without giving compensation Methanex v. United States Non-discriminatory intent Due process Tecmed v. United States: proportionality Examining the concerned public purpose/interest and the injury to investors

Option I: taking the policy needs in the interpretation of host states obligations C. Neccessity Articles 25 of State Responsibility: Necessity may not be invoked unless the taken act is only way for the State to safeguard and essential interest against a grave and imminent peril, and does not seriously impair an essential interest of other States or international community as a whole. Indispensable interpretation? (customary international law) Necessity test under GATT Article XX? reasonably available less restrictive alternative measure. The necessity clause in BIT reflects the content GATT Article XX, accordingly the WTO Panel/AB Report could be referenced for interpretation. (Continental Casualty Co. v. Republic of Argentina)

D. Fair and Equitable Treatment(FET) Option I: taking the policy needs in the interpretation of host states obligations D. Fair and Equitable Treatment(FET) The concept includes: Transparency of measures； Obligation under investment contract； Due process； Good faith； Prevent investors from totalitarianism and inappropriate interference； Balance between stability of investment and investors’ legitimate expectation

D. Fair and Equitable Treatment Option I: taking the policy needs in the interpretation of host states obligations D. Fair and Equitable Treatment Legitimate expectation: harmonising investors’ “legal predictability” and host states’ “ regulatory flexibility” The contents of the FET are consistent with the principles required in modern democratic countries by their domestic laws Host States without good governance will have more challenges . The host state could impair investors’ benefit, even consistent with transparency, good faith, non-discrimination or due process.

D. Fair and Equitable Treatment Option I: taking the policy needs in the interpretation of host states obligations D. Fair and Equitable Treatment Legitimate expectation: e.g. upgrading environmental standards whether investors are able to foresee the modification, at the time they invested. Host States must take the risk from multi-tiered governance Before making administrative decision, the government shall sufficiently communicate with foreign investors

Option II: as exceptions or defences for an breach of obligation Transplanting GATT Article XX; legitimate public policy Non-conforming clause Exclude individual obligation or the investment agreement as a whole Exclude a specific industry or a group of industries In Context of Agreement or in Appendix e.g. Art. 1108 of NAFTA excludes obligations of national treatment, MFN, performance requirements, no intervention on appointment of senior management positions or board of directors

What are the policy needs of Asian host states What are the policy needs of Asian host states? and Could the BIAs or the investment chapters meet their needs?

Environmental Protection as example The Trends in Turning to Green Investment Agreement Environmental clause incorporated into the BIAs Non-Disputing Party involvement in the individual-state investment disputes Corporate Social Responsibility(CSR) included in the BIAs

The Challenges for Environmental Protection in Asia Weak environmental regulation due to absence of laws or the institution capacity to enforce Economic growth in sectors that use or pollute environmental resources Severely increasing and urbanized pollution Substantial underlying poverty Corruption encouraging exploitation natural resources Solution: raise environmental standards, economic growth, technology transfer, capacity building on law enforcement

MEAs Signed by 9 Asian Countries

MEAs Signed by 9 Asian Countries (cont’d)

Challenges for Raising Environmental Standard in Asia Environmental Measures: change laws, criteria for permits, etc.. FET: Contrary to what the host state formally or informally promised; undeveloped environmental policy Lower level of governance over environmental issues ( less transparent, due process) Expropriation Contrary to what the host state promised Lack of capacity to prove the legitimacy of environmental measures in investor-sate disputes MFN: invoking clause of other BIAs that are less restrictive in terms of environmental protection

Challenges for Encouraging Private Sector Turning Green in Asia Measures: financial incentives, transfer of technology FET: Procedural deficiency due to lower administrative capacity National Treatment Environmental Interests intertwined with economic interests Performance requirement: - not prohibited under TRIMs - prohibited under some US BIAs

Environmental Clauses Preamble “Agreeing that these objectives can be achieved without relaxing health, safety and environmental measures of general application” (China-Trinidad and Tobago; India-Trinidad and Tobago) “Recognizing that these objectives can be achieved without relaxing health, safety and environmental measures of general application” (Japan-South Korea) General exception “Provided that such measures are not applied in an arbitrary or unjustifiable manner, or do not constitute a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Contracting Party from adopting or maintaining measures, including environmental measures: (a) necessary to ensure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement;(b) necessary to protect human, animal or plant life or health; or (c) relating to the conservation of living or non-living exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption” (China-Canada)

Environmental Clauses(Cont’d) Reserved policy space “This Article shall not be construed to prevent a Contracting Party from taking a regulatory action, for the public benefit of that Contracting Party on a non-discriminatory basis, to protect legitimate public welfare objectives, such as health, safety, and the environment.”(India-Saudi Arabia) Not-lowering standards “Both Contracting Parties recognize that it is inappropriate to encourage investment by investors of the other Contracting Party by relaxing environmental measures. To this effect each Contracting Party should not waive or otherwise derogate from such environmental measures as an encouragement for the establishment, acquisition or expansion in its territory of investments by investors of the other Contracting Party” (Japan-South Korea)

Environmental Clauses(Cont’d) Reserved policy space “This Article shall not be construed to prevent a Contracting Party from taking a regulatory action, for the public benefit of that Contracting Party on a non-discriminatory basis, to protect legitimate public welfare objectives, such as health, safety, and the environment.”(India-Saudi Arabia) Not-lowering standards “Both Contracting Parties recognize that it is inappropriate to encourage investment by investors of the other Contracting Party by relaxing environmental measures. To this effect each Contracting Party should not waive or otherwise derogate from such environmental measures as an encouragement for the establishment, acquisition or expansion in its territory of investments by investors of the other Contracting Party” (Japan-South Korea)

Environmental Clauses(Cont’d) Exemption from expropriation “Except in rare circumstances, non-discriminatory regulatory actions by a Contracting Party that are designed and applied to protect legitimate public welfare objectives including health, safety and the environmental concerns do not constitute indirect expropriation or nationalization.” (India-Iceland) “Actions and awards by judicial bodies of a Contracting Party that are designed, applied or issued in public interest including those designed to address health, safety and environmental concerns do not constitute expropriation or nationalization.”(India-Colombia)

Conclusions Explicit exceptions to investment protection or reservation for policy space is desirable The BIAs without environmental clause should be interrelated to focus more on the objective of the environmental measure and non-discriminatory nature : Qualified protections for investors No chilling effects National Treatment should be defined in more environmental friendly way

Thanks for Your Attention. Q and A