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2019 | OriginalPaper | Chapter

The Right to Regulate

Author : Catharine Titi

Published in: Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA)

Publisher: Springer International Publishing

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Abstract

The right to regulate has emerged as a sine qua non of new generation investment agreements and that much is true of the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. While Canada embraced the right to regulate in the early to mid-2000s, the right to regulate became a concern in the EU since the entry into force of the Treaty of Lisbon and the transfer of exclusive competence over foreign direct investment from the EU Member States to the Union. Since then, EU institutions repeatedly affirmed the need to include the right to regulate in new EU investment agreements and this policy was followed in the negotiation of CETA. The present chapter explores the right to regulate in CETA, focusing on exceptions that allow a party to digress from substantive investment obligations it has undertaken through other treaty provisions, but it also considers elements that without safeguarding a genuine right to regulate can enhance regulatory flexibility. Ultimately, it offers a tour d’horizon of this crucial concept with respect to this new megaregional.

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previous chapter Expropriation

next chapter Resolution of Investment Disputes

Philip Morris Brand Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/7; Philip Morris Asia Limited v. Australia, UNCITRAL, PCA Case No. 2012-12.

Comprehensive Economic and Trade Agreement (CETA), between Canada, of the one part, and the European Union and its Member States, of the other part, signed 30 October 2016, published in the Official Journal of the European Union, OJ L 11, 14 January 2017, pp. 23–1079.

Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, OJ EU L 11/3, 14 January 2017, pp. 3–22.

See e.g. Newcombe (2011); Legum and Petculescu (2013). Contrast e.g. OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, Working Papers on International Investment, No. 2004/4, OECD; Muchlinski (2009).

But contrast e.g. Muchlinski (2009).

See e.g. Art. 9.3 of the European Free Trade Association (EFTA)-Central America Free Trade Agreement (CAFTA) FTA, entitled Right to Regulate and Levels of Protection.

E.g. US Model BIT (2012), Art. 12.

E.g. US Model BIT (2012), Art. 24.

Norwegian Draft Model BIT (2015), Art. [12], emphasis added.

Titi (2014), pp. 111–114. Note that more recently a different kind of provision entitled ‘Right to regulate’ has started to be incorporated in IIAs. E.g. see Art. 10 of the Argentina-Qatar BIT (2016) (Right to regulate), which provides: ‘None of the provisions of this Agreement shall affect the inherent right of the Contracting Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, the environment, public morals, social and consumer protection.’

Titi (2014), p. 275 et seq.

Ibid., p. 34 with bibliography.

Ibid., p. 33.

Ibid., pp. 235–274.

ILC Articles on State Responsibility, Art. 27.

This is another reason for which the relevance of the ILC Articles on State Responsibility to the right to regulate is uncertain.

E.g. US Model BIT (2012), Art. 18.

E.g. CETA, Art. 8.9(4).

A note of caution is in order. Terminology is not consistent and some treaties employ the term ‘carve-out’ to refer to an exception. E.g. CETA, Art. 13.16 (Prudential carve-out), discussed below.

Titi (2015), p. 641.

Opinion 2/15 of the Court of Justice of the European Union, 16 May 2017.

Bungenberg and Titi (2014), p. 301.

Council, Minimum Platform on Investment, 15375/06, 27 November 2006.

Titi (2015), p. 627.

E.g. European Parliament Resolution of 6 April 2011 on the future European international investment policy, paras 23–26; European Parliament Resolution of 9 October 2013 on the EU-China negotiations for a bilateral investment agreement, para. 23, also paras. 26 and 29; European Parliament Resolution of 8 July 2015, para. 2(a)(vi). See further European Parliament Resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), paras 2(a)(vi) and 2(b)(xviii) et seq.; European Parliament resolution of 23 May 2013, paras 11, 13 and 16; Parliament Resolution of 5 July 2016, paras 13 and 15. On these, see further Titi (2015), p. 644 et seq. and passim.

Bungenberg and Titi (2014), p. 311.

TFEU, Arts. 207(4) and 218(10).

TFEU, Art. 218(6).

EU Council, Conclusions on a Comprehensive European International Investment Policy, 3041st Foreign Affairs Council Meeting, 25 October 2010, para. 17.

E.g. European Commission Communication Towards a comprehensive European international investment policy, COM(2010)343 final, 7.7.2010, p. 9; European Commission, Fact Sheet: Investment Protection and Investor-to-State Dispute Settlement in EU Agreements, November 2013, passim; European Commission, Concept paper: Investment in TTIP and beyond—the path for reform, May 2015, http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF; European Commission Communication Trade for all: Towards a more responsible trade and investment policy, 14 October 2015, p. 21; European Commission, Fact Sheet, Why the new EU proposal for an Investment Court System in TTIP is beneficial to both States and investors, Brussels, 12 November 2015; European Commission services’ position paper on the sustainability impact assessment in support of negotiations of the Transatlantic Trade & Investment Partnership between the European Union and the United States of America of 31 March 2017, passim.

Vienna Convention on the Law of Treaties (VCLT), Art. 31(1).

Newcombe and Paradell (2009), p. 124.

VCLT, Art. 31(2).

For some examples, see Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004; SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction, 29 January 2004; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005; MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004; Occidental Exploration and Production Company v. Ecuador, UNCITRAL, LCIA Case No. UN 3467, Final Award, 1 July 2004; CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005; Enron Creditors Recovery Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007; Saluka Investments BV v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006; National Grid v. Argentina, UNCITRAL, Award, 3 November 2008; El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award, 31 October 2011; Daimler Financial Services AG v. Argentina, ICSID Case No. ARB/05/1, Award, 22 August 2012, para. 258.

Notable exceptions include Saluka Investments BV v. Czech Republic (n. 34), see para. 300, where the tribunal held that ‘the protection of foreign investments is not the sole aim of the Treaty, but rather a necessary element alongside the overall aim of encouraging foreign investment and extending and intensifying the parties’ economic relations. That in turn calls for a balanced approach to the interpretation of the Treaty’s substantive provisions for the protection of investments, since an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host States from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations.’ and to some extent.

SGS Société Générale de Surveillance S.A. v. Philippines (n. 34), para. 116. See also Siemens A.G. v. Argentina (n. 34), para. 81; National Grid v. Argentina (n. 34), para. 170.

Occidental Final Award as cited in Total SA v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010, para. 183; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, paras 124–125; Enron Creditors Recovery Corporation and Ponderosa Assets, L.P. v. Argentina (n. 34), paras 259–260; CMS Gas Transmission Co. v. Argentina (n. 34), para. 274; see also National Grid v. Argentina (n. 34), para. 170. See also ATA Construction, Industrial and Trading Company v. Jordan, ICSID Case No. ARB/08/2, Award, 18 May 2010, para. 125, where the tribunal relied on the preamble to find that the extinguishment of the claimant’s right to arbitration by the Jordanian courts violated not only the letter but also the spirit of the applicable treaty.

Enron Creditors Recovery Corporation and Ponderosa Assets, L.P. v. Argentina (n. 34), para. 331. See also Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award, 28 September 2007, para. 373.

Titi (2014), p. 121.

Reference here is made to a private discussion the author had with a renowned scholar and arbitrator who dismissed the role of exceptions in the interpretation of investment treaties because he claimed they run ‘against the spirit’ of the treaty.

Saluka Investments BV v. Czech Republic (n. 34), para. 300: ‘[T]he protection of foreign investments is not the sole aim of the Treaty, but rather a necessary element alongside the overall aim of encouraging foreign investment and extending and intensifying the parties’ economic relations. That in turn calls for a balanced approach to the interpretation of the Treaty’s substantive provisions for the protection of investments, since an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host States from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations.’

Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, paras 272–273: ‘[T]he object and purpose of the Treaty is not to protect foreign investments per se, but as an aid to the development of the domestic economy. And local development requires that the preferential treatment of foreigners be balanced against the legitimate right of Ukraine to pass legislation and adopt measures for the protection of what as a sovereign it perceives to be its public interest.’

To the above restrictive interpretations, contrast the S.D. Myers Partial Award, deciding also in light of environmental language in the NAFTA Preamble, see S.D. Myers, Inc. v. Canada, UNCITRAL, Partial Award, 13 November 2000, para. 220. See also Titi (2014), p. 121; Markert (2011), p. 160.

European Commission, Concept paper: Investment in TTIP and beyond – the path for reform, May 2015, http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF.

Ibid.

Cf. Argentina-Qatar BIT (2016), Art. 10, which makes reference to ‘the inherent right of the Contracting Parties to regulate’, emphasis added.

Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20.

E.g. NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11, registered May 2014; Alten Renewable Energy Developments BV v. Spain, SCC, registered March 2015; BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain, ICSID Case No. ARB/15/16, registered May 2015; Greentech Energy Systems and Novenergia v. Italy, SCC, registered July 2015; Hydro Energy 1 S.àr.l. and Hydroxana Sweden AB v. Spain, ICSID Case No. ARB/15/42, registered October 2015.

E.g. US Model BIT (2012), Art. 4.

UNCTAD, Most-Favoured-Nation Treatment, 2010, UN, pp. 13–14, 98.

CETA, Art. 8.7(4).

Sornarajah (2008).

E.g. NAFTA, Free Trade Commission Clarifications Related to NAFTA Chapter 11, 31 July 2001, http://www.worldtradelaw.net/nafta/chap11interp.pdf; US Model BIT (2012), Art. 5(2); Canadian Model BIT (version of 2012), Art. 6(2).

Ibid.

L. F. H. Neer and Pauline Neer (USA) v. Mexico, Award, 15 October 1926, Reports of International Arbitral Awards/ Recueil des sentences arbitrales, Vol. IV, pp. 61–62, para. 4.

Glamis Gold, Ltd v. United States, UNCITRAL, Award, 8 June 2009, paras. 615–616.

E.g. Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 543.

Titi (2015), p. 656.

CETA, Art. 8.10(2).

Titi (2015), p. 656.

European Commission, ‘Public Consultation on Modalities for Investment Protection and ISDS in TTIP’, Consultation Document (2014), available at trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf.

CETA, Art. 8.10(4).

E.g. Compañía de Aguas del Aconquija, S.A. and Vivendi Universal S.A. v. Argentina, Award, 20 August 2007, para. 7.4.16; AES Summit Generation Limited Aes-Tisza EröMü KFT, 23 September 2010, para. 13.3.2; Total SA v. Argentina (n. 37), para. 343; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, para. 321.

CETA, Art. 8.10(5).

CETA, Art. 8.12.

CETA, Annex 8-A.

Ibid.

Spyridon Roussalis v. Romania (n. 63), paras. 328, 330.

E.g. Burlington Resources Inc. v. Ecuador, ICSID Case No. ARB/08/5, Decision on Liability, 14 December 2012, para. 504.

American Law Institute, Restatement of the Law (Third) - Foreign Relations Law of the United States, para. 712, comment g.

Saluka Investments BV v. Czech Republic (n. 34), para. 262.

On the police powers doctrine and the other approaches to the interpretation of an indirect expropriation discussed in this paragraph, see Titi (2018).

E.g. in Philip Morris v. Uruguay, the tribunal made references to proportionality and considered that the police powers doctrine constitutes customary international law, see Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 295 and passim.

CETA, Annex 8-A, paras. 2 and 3.

CETA, Art. 8.12(5).

CETA, Art. 8.12(6).

On the right to regulate and capital transfer provisions, see Titi (2014), p. 155 et seq.

CETA, Art. 13.16(1).

On general exceptions clauses, see Titi (2014), p. 169 et seq.

E.g. CETA, Arts. 28.4 and 28.5.

Titi (2014), pp. 190–205.

Canadian Model BIT (2012), Art.18(4).

US Model BIT (2012), Art. 18.

LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentina (n. 37).

Note however that Art. XI of the Argentina-US BIT also contains an exception for the maintenance of public order, although the tribunal in its reasoning expressly refers to essential security interests.

LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentina (n. 37), para. 219.

Ibid., para. 238.

Canadian Model BIT (2012), Art. 18(4).

US Model BIT (2012), Art. 18 emphasis added.

Emphasis added.

Note that the term ‘international peace or security’ is absent from the UN Charter. See further Titi (2014), pp. 90–93.

Emphasis added.

Emphasis in the original. The text of the consultation is available here http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf.

Ibid.

Bungenberg M, Titi C (2014) The evolution of EU investment law and the future of EU-China investment relations. In: Shan W, Su J (eds) China and international investment law: twenty years of ICSID membership. Brill

Legum B, Petculescu I (2013) GATT Article XX and international investment law. In: Echandi R, Sauvé P (eds) Prospects in international investment law and policy: World Trade Forum. Cambridge University Press

Markert L (2011) The crucial question of future investment treaties: balancing investors’ rights and regulatory interests of host states. In: Bungenberg M, Griebel J, Hindelang S (eds) European yearbook of international economic law 2011, Special Issue: international investment law and EU law. Springer

Muchlinski P (2009) Trends in international investment agreements: balancing investor rights and the right to regulate – the issue of national security. In: Sauvant KP (ed) Yearbook on international investment law & policy 2008–2009. Oxford University Press

Newcombe A (2011) General exceptions in international investment agreements. In: Cordonier Segger MC, Gehring MW, Newcombe A (eds) Sustainable development in world investment law. Kluwer Law International

Newcombe A, Paradell L (2009) Law and practice of investment treaties. Wolters Kluwer

OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, Working Papers on International Investment, No. 2004/4, OECD

Sornarajah M (2008) A coming crisis: expansionary trends in investment treaty arbitration. In: Sauvant KP, Chiswick-Patterson M (eds) Appeals mechanism in international investment disputes. Oxford University Press

Titi C (2014) The right to regulate in international investment law. Nomos and Hart Publishing

Titi C (2015) Investment law and the European Union: towards a new generation of international investment agreements. Eur J Int Law 26(3)

Titi C (2018) Police powers doctrine and international investment law. In: Gattini A, Tanzi A, Fontanelli F (eds) General principles of law and international investment arbitration. Brill

UNCTAD (2010) Most-Favoured-Nation Treatment

Title: The Right to Regulate
Author: Catharine Titi
Publisher: Springer International Publishing
Book: Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA)
Print ISBN: 978-3-319-98360-8

Electronic ISBN: 978-3-319-98361-5

Copyright Year: 2019
DOI: https://doi.org/10.1007/978-3-319-98361-5_7

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