View this email in your browser 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看:  https://ccsi.columbia.edu/content/columbia-fdi-perspectives. Columbia FDI Perspectives Perspectives on topical foreign direct investment issues Editor-in-Chief: Karl P. Sauvant ([log in to unmask]) Managing Editor: Matthew Conte ([log in to unmask]) The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters. No. 374   January 8, 2024 Why public policy exceptions have not delivered and how to make them more effective by Catharine Titi*   The main substantive evolution in recent investment treaty-making is the increase in public policy exceptions found in these treaties. Exceptions typically prevent state conduct from being deemed a treaty violation. They provide, for example, that nothing in the treaty prevents a state from adopting measures that it considers necessary for the protection of its essential security interests or that nothing in the treaty precludes a state from adopting non-arbitrary and nondiscriminatory measures necessary for protecting the environment or public health.   But what exactly do these exceptions mean? Their interpretation is proving to be one of the biggest conundrums of international investment law—and it is important to understand why, because it makes the application of international investment treaties (IIAs) unpredictable.   The interpretation of investment exceptions has left much to be desired from the beginning. In CMS v Argentina and awards that followed, investment tribunals rendered nugatory the applicable treaty’s security exception. These awards were criticized and some were annulled. Rare interpretations of similar exceptions in newer disputes give hope that lessons have been learned and the interpretation of these exceptions is becoming more foreseeable.   Yet, other exceptions, notably exceptions targeting measures for the protection of the environment, have given rise to new controversial interpretations. In Bear Creek v. Peru and Eco Oro v. Colombia, the tribunals held that, even when an exception applies, it does not remove the state’s duty to compensate affected investors.   Treaties rarely state expressly whether an exception removes the duty to compensate. The CMS annulment committee addressed the issue in 2007 (para. 129): “if [the exception] applies, the substantive obligations under the Treaty do not apply.” If the substantive obligations do not apply, there is no need to compensate. Otherwise, why introduce the exception? An explanation given by the Eco Oro tribunal that the exception’s only purpose is to make the state’s environmental measures lawful is unsatisfactory—it implies that, in the absence of an exception, a state’s public welfare measures are “unlawful.” This interpretation reveals a misunderstanding about how exceptions function and places important limits on their usefulness.   But it raises another problem too: how does one interpret provisions that seem to excuse all but the most egregious state conduct? Exceptions are sometimes so broad that they appear to defeat the very purpose of investment protection. Consider a provision—not technically an exception—through which the parties affirm (CETAart. 8.9(1)) “their right to regulate … to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.” Under this provision, what kinds of state measures are actually left that could, potentially, give rise to a breach?   It is time to ask whether we have gone too far in trying to safeguard policy space because this seems to be affecting tribunals’ willingness to give effect to some treaty exceptions. We know that it is impossible to draft a perfect treaty. Still, states must take the long view and consider how to make their treaties (and their exceptions) effective. Here are some thoughts on how to achieve this: Throwing in as many exceptions as possible is not the solution. If tribunals regard exceptions as too far-reaching, they may find that they do not apply or that, if they do, compensation is still due. In other words, they may behave as if exceptions do not exist. It is time to specify in a treaty itself whether, if an exception applies, there is a duty to compensate. This only happens with respect to indirect expropriation and the police-powers doctrine. It led the Bear Creek tribunal to reason that, since compensation was expressly excluded only in relation to indirect expropriation, compensation must then be due in all other cases. It may be useful to draw attention to the need to apply treaty provisions reasonably, in good faith, equitably, etc. Tribunals have this obligation anyway, on the basis of general international law, including the Vienna Convention on the Law of Treaties (VCLT). The current all-or-nothing approach should be abandoned. Treaty interferences of different gravity should be accounted for and require different standards of compensation. Overly narrow exceptions, such as exceptions for tobacco control measures or feed-in tariffs, should best be avoided. They fail to predict future situations and can limit the effectiveness of other exceptions. Adjudicator selection matters. Adjudicators should have excellent knowledge of public international law and be able to apply treaties in accordance with the VCLT.  As the number of exceptions increases, IIAs become more complex and difficult to interpret—too long, sometimes repetitive and contradictory. It is crucial that key exceptions, such as security, environment and public health exceptions, are present in the treaty text. But it is not advisable to introduce as many exceptions as possible. Drafting well-balanced treaties and tackling the issue of compensation may be as important to enhance the predictability of their interpretation.   * Catharine Titi ([log in to unmask]) is tenured Research Associate Professor at the French National Centre for Scientific Research (CNRS) and the CERSA research center of the University Paris-Panthéon-Assas. The author wishes to thank Michael Reisman, Francis Ssekandi and Katia Yannaca-Small for their helpful peer reviews. The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Catharine Titi, ‘Why public policy exceptions have not delivered and how to make them more effective,’ Columbia FDI Perspectives, No. 374, January 8, 2024. Reprinted with permission from the Columbia Center on Sustainable Investment (http://ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask] For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Matthew Conte, [log in to unmask].   Most recent Columbia FDI Perspectives    No. 373, Bamituni Etomi Abamu, ‘Reducing the reliance on global value chains by strengthening backward linkages,’ Columbia FDI Perspectives, December 26, 2023 No. 372, Fabrizio De Benedetto, ‘Indirect FDI under EU FDI regulation in times of war: is the anti-circumvention clause enough?’ Columbia FDI Perspectives, December 11, 2023 No. 371, Nitesh Dullabh, ‘Developing country and industry materiality assessments to increase sustainable FDI,’ Columbia FDI Perspectives, November 27, 2023 All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives. Other relevant CCSI news and announcements Applications are now open for our 2024 virtual Executive Training Program on Sustainable Investments in Agriculture, which will be held from May 7-17, 2024. The interdisciplinary program explores challenges and solutions for advancing sustainable investments in agriculture. It includes asynchronous and synchronous components, including short and interactive live sessions dedicated to engagement with course lecturers and participants from around the world. Applications will be considered on a rolling basis until March 15, 2024. For more information, and to apply, visit our website. Karl P. Sauvant, Ph.D. Senior Fellow Columbia Center on Sustainable Investment Columbia Law School - Columbia Climate School Copyright © 2024 Columbia Center on Sustainable Investment (CCSI), All rights reserved. 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