BIICL - Investment Treaty Forum Fair and Equitable Treatment in Investment Treaty Law September 9, 2005, Gray’s Inn, London Session Three: The Emergency Exception and the State of Necessity Ian A. Laird September 9, 2005

BIICL - Investment Treaty Forum Ian A. Laird September 9, 2005

Structure of Presentation 1.What is the “State of Necessity”? (a)Customary international law and the International Law Commission’s Articles on State Responsibility Article 25 2.What is the “Emergency Exception”? (a)The Argentina-US BIT example (i)Article IV (ii)Article XI (b)The “Essential Security Interest” (i)GATT Article XXI (ii)BITS and NAFTA

Structure of Presentation (c)The “National security” exception in domestic investment review laws (i)United States - Exon-Florio review (ii)Canada - Bill C-59 Recent proposed amendments to Investment Canada Act 3.Current Examples of the application of “national security” to foreign investments (a)United States - Exon-Florio review cases, UNOCAL and the CAFTA flap (b)Canada - China Minmetal Corp. and its potential purchase of Noranda 4.The Intersection of Fair and Equitable Treatment and the Emergency Exception

State of Necessity International Law Commission’s Articles on State Responsibility Article 25: Necessity Necessity may not be invoked by a State as a ground for precluding wrongfulness of an act not in conformity with an international obligation of the State unless the act: (a) is the only means for the State to safeguard an essential interest against a grave and imminent peril; and (b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.

State of Necessity 2.In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if: (a) the international obligation in question excludes the possibility of invoking necessity; or (b) the State has contributed to the situation of necessity.

Emergency Exception Argentina-US BIT (1994) ARTICLE IV 3. Nationals or companies of either Party whose investments suffer losses in the territory of the other Party owing to war or other armed conflict, revolution, state of national emergency, insurrection, civil disturbance or other similar events shall be accorded treatment by such other Party no less favorable than that accorded to its own nationals or companies or to nationals or companies of any third country, whichever is the more favorable treatment, as regards any measures it adopts in relation to such losses. [emphasis added]

Emergency Exception Argentina-US BIT (1994) ARTICLE XI This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests. [emphasis added]

Emergency Exception – GATT Article XXI Article XXI: Security Exceptions Nothing in this Agreement shall be construed … (b) to prevent any contracting party from taking any action which it considers necessary for the protection of essential security interests (i) relating to fissionable materials or the materials from which they are derived; (ii)relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; (iii) taken in time of war or other emergency in international relations;

Emergency Exception – BITs and NAFTA NAFTA (1993) Article 2102: National Security 1. Subject to Articles 607 (Energy - National Security Measures) and 1018 (Government Procurement Exceptions), nothing in this Agreement shall be construed: … (b) to prevent any Party from taking any actions that it considers necessary for the protection of its essential security interests (i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment, (ii) taken in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices;

Emergency Exception US Model BIT (2004) Article 18: Essential Security Nothing in this Treaty shall be construed: 1. to require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or 2. to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

Emergency Exception Canada Model FIPA (2003) Article 10: General Exceptions 2. Nothing in this Agreement shall be construed to prevent a Party from adopting or maintaining reasonable measures for prudential reasons, such as: (a) the protection of investors, depositors, financial market participants, policy-holders, policy-claimants, or persons to whom a fiduciary duty is owed by a financial institution; (b) the maintenance of the safety, soundness, integrity or financial responsibility of financial institutions; and (c) ensuring the integrity and stability of a Party's financial system.

Emergency Exception 4. Nothing in this Agreement shall be construed: … (b) to prevent any Party from taking any actions that it considers necessary for the protection of its essential security interests (i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment, (ii) taken in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices;

Emergency Exception Central America Free Trade Agreement (CAFTA) (August 2005) Article 21.2: Essential Security Nothing in this Agreement shall be construed: (a) to require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or (b) to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

Emergency Exception Jordan-US BIT (1997) ARTICLE XIV MEASURES NOT PRECLUDED BY THIS TREATY 1. This Treaty shall not preclude a Contracting Party from applying measures necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests. COMPARE with Article XI of the Argentina-US BIT: This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests.

Emergency Exception Letter of Submittal for the Jordan-US BIT, May 1, Excerpt describing meaning of essential security interest: Article XIV (Measures Not Precluded by the Treaty) “Measures permitted by the provision on the protection of a Party's essential security interests would include security-related actions taken in time of war or national emergency. Actions not arising from a state of war or national emergency must have a clear and direct relationship to the essential security interests of the Party involved. Measures to protect a Party's essential security interests are self- judging in nature, although each Party would expect the provisions to be applied by the other in good faith.”

“National Security” United States Exon-Florio Review The President or the President’s designee may make an investigation to determine the effects on national security of mergers, acquisitions, and takeovers proposed or pending on or after the date of enactment of this section [Aug. 23, 1988] by or with foreign persons which could result in foreign control of persons engaged in interstate commerce commerce in the United States.

“National Security” Canada Bill C-59, June Proposed Amendments to the Investment Canada Act 2. Recognizing that increased capital and technology would benefit Canada and recognizing the importance of protecting national security, the purposes of this Act are … b) to provide for the review of investments in Canada by non-Canadians that could be injurious to national security (1) If the Minister has reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security, the Minister may send to the non-Canadian a notice that an order for the review of the investment may be made under subsection 25.3(1).

“National Security” 25.4 (1) On the referral of an investment under paragraph 25.3(6)(a), the Governor in Council may, by order, within the prescribed period, take any measures in respect of the investment that the Governor in Council considers advisable to protect national security, including (a) directing the non-Canadian not to implement the investment; (b) authorizing the investment on condition that the non-Canadian (i) give any undertakings to Her Majesty in right of Canada relating to the investment that the Governor in Council considers necessary in the circumstances, or (ii) implement the investment on the terms and conditions contained in the order; or (c) requiring the non-Canadian to divest themself of control of the Canadian business or their investment in the entity.

Structure of Presentation 3.Current Examples of the application of “national security” to foreign investments (a)United States - Exon-Florio review cases, UNOCAL and the CAFTA flap (b)Canada - China Minmetal Corp and potential purchase of Noranda 4.The Intersection of Fair and Equitable Treatment and the Emergency Exception

Thank you